India’s several inflation measures and their differences

A visit to CSO’s website today got me to this paper by Ashish Kumar and G. M. Boopathy of the same institution.

It is a much needed paper as it fills this gap of comparing the various inflaiton measures in India. Apart from the numbers and trends which most other papers/notes give us, this one goes into methodology and construction details. And this is what leads to differences in the various inflation measures as well:

Primary use of WPI is to have inflationary trend in the economy as a whole whereas CPI is used for adjusting income and expenditure streams for changes in the cost of living. There are conceptual and definitional differences between CPI and WPI. These differences contribute to the differences in their price movements Definitional differences are due to composition of the commodities and also due to types of prices used in compilation.

WPI is based on wholesale prices for primary articles, administered prices for fuel items and ex-factory prices for manufactured products. On the other hand, CPI is based on retail prices, which include all distribution costs and taxes.

Prices for WPI are collected on voluntary basis while price data for CPI are collected by investigators by visiting markets. CPI covers only consumer goods and consumer services while WPI covers all goods including intermediate goods transacted in the economy.

Methodologies adopted for deriving their weighting patterns are also different, WPI weights primarily based on national accounts and enterprise survey data and CPI weights are derived from consumer expenditure survey data.

Methodologies adopted for treatment of missing prices, seasonal items etc. are different; imputed price using the current available prices or repeating the previous prices for missing prices and earmarking months for seasonal items.

A very nice summary of the various inflation measures. Atleast one gets some sense of how these indices are compiled and computed..



One Response to “India’s several inflation measures and their differences”

  1. M Akhil Says:

    Really useful. Thanks.

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