Consumer Price Index (CPI)
Consumer Price Index (CPI) is one of the most important price indices used in India to measure inflation. Consumer Price Index measures inflation rate at the retail level. CPI tracks the price actually paid by the consumer to retailers. This index contains goods which are sensitive to consumer. CPI too has base year 2011-12 like Whole Sale Price Index (WPI) that measures inflation rate at the wholesale level.
Weights of broad group in the latest CPI series are as shown below
Headline : 100%
Food and beverages : 45.9%
Non-food non-fuel (core) : 47.3%
Fuel and light : 6.8%
India has four different sets of CPI with some differentials in the basket of commodities depending upon the socio economic differentiations of the consumers. The baskets are periodically updated.
a. Consumer Price Index of Industrial Workers (CPI-IW): The data on 160 items is collected at 76 centres with one month frequency and this price index has a time lag of one month. The wages and salaries of central government employees are revised on the basis of changes occurring in CPI-IW. Dearness Allowance (DA) is announced twice a year based on CPI-IW. It is the basis for recommendation of pay revision by Pay Commission.
b. Consumer Price Index of Agricultural Labourers (CPI-AL): The data on 260 commodities is collected from 600 villages with monthly frequencies and has three weeks time lag. The index is used for revision of minimum wages for agricultural labourers.
c. Consumer Price Index of Rural Workers (CPI-RW): The data on 600 commodities from 600 villages with monthly frequencies is collected and has three weeks time lag in arriving at this index.
d. Consumer Price Index of Urban Non Manual Employees (CPI- UNME): Data on 365 commodities from 59 centres is collected on monthly basis. This has a time lag of two weeks. CPI- UNME index has limited use and is used by some foreign companies operating in India for determining dearness Allowance (DA ) of their employees.
Consumer Food Price Index (CFPI)
Consumer Food Price index is a measure of change in retail prices of food items consumed by population. The major cause of inflation in India is caused by supply interruptions in food items. Central Statistics Office (CSO), is responsible for releasing the data and it is being released for three categories- rural, urban and combined- from May 2014. This index helps to monitor price situation of food items better. The methodology used for computation of CFPI is same as that of CPI.
In 2014, RBI adopted a new Consumer Price Index (CPI combined) in place of WPI as the key measure of inflation and for monetary policy framework.
Differences between WPI and CPI
WPI series mainly tracks changes in prices of producer and bulk transaction prices. It is similar to Producer Price Index compiled by foreign nations. CPI tracks the movement of price at retail level or the prices consumers pay.
The weight of total food items in WPI series is only 24.3% as against 45.9% in the CPI series.
WPI basket consists of only commodities. CPI basket consists of commodities as well as services like health and education. Weightage of crude in CPI basket is negligible.
