Consumers face more heat than WPI suggests

RISING PRICE INDEX: READING BETWEEN THE NUMBERS

Even as the wholesale price inflation has risen to above 7 per cent after three-and-a-half years, the inflation faced by consumers has averaged higher than this level for over two years now.

While India uses the wholesale price index (WPI) to measure headline inflation, most countries in the world use a unified consumer price index (CPI). The CPI is considered a better measure of inflation faced by a household as it reflects prices of commodities at the retail level whereas the WPI measures changes at the wholesale level.

The average inflation rate in 2007-08 for agricultural labourers, measured by the CPI-AL, stood at 7.5 per cent. The index for rural labourers, CPI-RL, averaged 7.2 per cent during the year.

The index for industrial workers, CPI-IW, and urban non-manual employees, CPI-UNME, also averaged well above 6 per cent during the year. In 2006-07 too, consumer price inflation for agricultural labourers and rural labourers was above 7 per cent.
 

UP ALL THE WAY
Year/indices	WPI	CPI-IW	CPI-UNME	CPI-AL	CPI-RL
2000-01	7.1	3.8	5.6	-0.3	0.0
2001-02	3.6	4.3	5.1	1.1	1.3
2002-03	3.4	4.0	3.8	3.2	3.1
2003-04	5.5	3.9	3.7	3.9	3.8
2004-05	6.5	3.8	3.6	2.6	2.6
2005-06	4.4	4.4	4.0	3.9	3.9
2006-07	5.4	6.7	6.6	7.8	7.5
2007-08	4.6	6.2	6.6	7.5	7.2
Note: All figures in %, refer to average annual inflation rate Source: Government data

The commodity composition of the four indices varies significantly. The CPI-AL, for example, gives the highest weight to food items. "The data show that poor people are facing relatively higher inflation. It may be because of higher food prices in recent years.

Such sections of population need to be reached through a more targeted public distribution system. However, with pilferage all around, it is not happening at the moment," said Dharmakirti Joshi, principal economist, Crisil.

However, economists say consumer price indices have limited uses as the commodity baskets used have outlived their utility and are essentially meant to determine wages. "None of the measures of inflation are adequate. High revisions in provisional inflation numbers also put a big question mark on the data collection system," Joshi added.

At present, there is no broad-based CPI in India. A technical committee on the Statistics of Prices and Cost of Living has decided to come out with two CPIs "" urban and rural. It has also decided to continue with the CPI-UNME without revision till the CPI (Urban) is stabilised. The Central Statistical Organisation has started work to bring out the new consumer price index.