India needs to have a Producers Price Index (PPI), which measures price changes from the perspective of the seller, said Dr D. Subbarao, Governor, Reserve Bank of India.
Sellers' and purchasers' prices differ due to government subsidies, sales and excise taxes, and distribution costs. "For these reasons, it is desirable that we move towards developing a Producer Price Index (PPI) that measures the average change over time in the sale prices of domestic goods and services," said the Governor at the 6th Statistical Conference held in the city.
There are some problems with inflation measurement and interpretation in the country, he said.
“It is difficult, even for me, to interpret inflation,” the Governor said.
He exemplified this in a lighter vein when he said, “When I was young and I had a thick mop of hair, I paid Rs 25 for a haircut…now I have hardly any hair but pay Rs 150 for a haircut.”
I struggle to determine how much of that is inflation and how much is the premium I pay the barber for the privilege of cutting the Governor’s non-existent hair.
He said the weightage is different for commodities in the consumer price index and the wholesale price index. “This is a problem.”
The Governor also said one needs to be mindful about the difference between headline and core inflation.
Core inflation does not take into account inflation in food items and fuel prices as both are considered to be volatile.
“In an economy like ours where food and fuel consumption accounts for 50 per cent and 15 per cent respectively…can a core inflation figure be arrived at by excluding the two?” he asked.