Article:
In recent news, wholesale inflation in India rose to a substantial 13.11%, and the retail inflation rate reached 6.07% in February 2022. This article will explore key economic indices such as the Wholesale Price Index and the Consumer Price Index, and how they are connected to the Monetary Policy Committee and the Reserve Bank of India. It will also delve into the impact of inflation on the economy.
Understanding the Wholesale Price Index
The Wholesale Price Index (WPI) reflects the changes in prices at which goods are sold and traded in bulk by wholesale businesses. The Office of Economic Adviser, Ministry of Commerce and Industry publishes this data, which serves as a key inflation indicator in India.
Critics argue that the WPI is not directly relevant for the general public, as they do not purchase goods at wholesale prices. In 2017, the base year for the All-India WPI was updated from 2004-05 to 2011-12.
The Role of the Consumer Price Index
The Consumer Price Index (CPI) captures price fluctuations from the viewpoint of a retail buyer. This data, published by the National Statistical Office (NSO), calculates changes in the cost of commodities and services consumed by Indians, such as food, medical care, education, and electronics.
The CPI includes several sub-groups like food and beverages, fuel and light, housing and clothing, bedding and footwear. There are four types of CPI indices: CPI for Industrial Workers (IW), CPI for Agricultural Labourer (AL), CPI for Rural Labourer (RL), and CPI (Rural/Urban/Combined). The Labour Bureau within the Ministry of Labour and Employment compiles the first three, while the NSO compiles the fourth index.
In 2016, the base year for CPI was set as 2012. The Monetary Policy Committee uses this CPI data to manage inflation.
Contrasting the CPI and WPI
While both the CPI and WPI track price changes, there are key differences. WPI monitors inflation at the producer or manufacturer’s level, whereas CPI gauges price changes at the consumer level. WPI does not account for variations in the service prices, while the CPI does. Manufactured goods have a higher weightage in WPI calculations, but food items hold more weight in the CPI.
Understanding the Concept of Inflation
Inflation represents an increase in the prices of daily goods and services like food, clothing, housing, recreation, transport, and consumer staples. It measures the change in average price levels of a basket of commodities and services over a period.
Inflation also indicates a decrease in the purchasing power of a currency, which could potentially slow down economic growth. Nonetheless, a certain degree of inflation is necessary to promote production in the economy.
Inflation Measurement in India
Inflation in India is primarily measured by two indices, the WPI and the CPI, which assess wholesale and retail-level price changes, respectively. In 2014, the Reserve Bank of India adopted the CPI as its chief measure of inflation.
Conclusion
Understanding these economic indices helps us comprehend the current economic scenario and provides a quantitative base for policy-making. Along with other economic parameters, these indices serve as a crucial tool to track and analyze market trends and price movements.