Mint Road to come out with new CPI soon

The Reserve Bank of India (RBI) is planning to bring a new consumer price index (CPI) as the present indices, both the CPI and the wholesale price index (WPI), have become less representative with the rising clout of services in the consumption basket.

"We are doing technical work on computing a harmonised consumer price index and we are in consultation with the government in this regard," RBI Governor Y V Reddy has said.

The goal is to anchor inflation expectations in India, so as to align them with the global levels as soon as possible, for ensuring smooth economic integration with the global economy, Reddy said. There are occasions when the divergence between the WPI and the CPI is larger than usual. In view of these considerations, the central bank monitors and disseminates all the CPI indicators, he said.

The new index is expected to combine the characteristics of the present wholesale price index and the consumer price index, both for the urban and rural people, he said, adding that the index would help in calculating a more realistic figure for the weekly inflation data.

Reddy said the increasing importance of services in the consumption basket is making the Wholesale Price Index (WPI) "" the main measure of inflation "" less representative.

A single CPI index could be even less representative as there are differing consumption trends among the rich and the poor, the rural and the urban and among regions across the country, he said.

"We do not have the concept of core inflation, but for purposes of analysis as well as articulation, we identify the impact of fuel and food price shocks," Reddy said, adding that these items are often subject to shocks, both external and domestic, and also have a large weight in the consumption basket.

Commenting on inflationary trend, he said, the inflation rate accelerated steadily from an annual average of 1.7 per cent during the 1950s to 6.4 per cent during the 1960s and further to 9.0 per cent in the 1970s before easing marginally to 8.0 per cent in the 1980s.

However, the inflation rate declined from an average of 11 per cent during 1990-95 to 5.3 per cent during the second half of the 1990s (1995-2000) and further to 4.9 per cent during 2003-07, he said.

More recently, during 2006-07, the WPI inflation rate increased from 4.1 per cent at the end of March 2006 to an intra-year peak of 6.7 per cent at end-January 2007 and remained firm in the range of 6.1-6.6 per cent in the succeeding weeks before moderating to 5.7 per cent by the end of the financial year.