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WAYS TO MEASURE INFLATION:

 Consumer price index:

A measure that examines the weighted average ! "ri#es ! a $as%et ! 

#nsumer and servi#es& su#h as trans"rtatin& !d and medi#a' #are( The )*I is

#a'#u'ated $+ ta%ing "ri#e #hanges !r ea#h item in the "redetermined $as%et ! 

gds and averaging them, the gds are weighted a##rding t their im"rtan#e(

)hanges in )*I are used t assess "ri#e #hanges ass#iated with the #st ! 'iving(

The #a'#u'atin inv'ved in the estimatin ! )*I is -uite rigrus( .arius

#ategries and su$/#ategries have $een made !r #'assi!+ing #nsum"tin items and

n the $asis ! #nsumer #ategries 'i%e ur$an r rura'( 0ased n these indi#es and

su$/indi#es $tained& the !ina' vera'' index ! "ri#e is #a'#u'ated mst'+ $+ natina'

statisti#a' agen#ies( It is ne ! the mst im"rtant statisti#s !r an e#nm+ and is

genera''+ $ased n the weighted average ! the "ri#es ! #mmdities( It gives an

idea ! the #st 'iving(

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  Wholesale Price Index:

India is ne ! the !ew #untries where the W*I is #nsidered as the head'ine

in!'atin measure $+ the #entra' $an%( This "re!eren#e ver the )*I Is !ten ex"'ained

in terms ! three #riteria natina' #verage& time'iness ! re'ease 1nw n'+ 'imited t

!d "rdu#ts2 and its avai'a$i'it+ in a disaggregate !rmat( O! these #riteria& n'+ the

'ast ne is un#ntrversia' 3 the )*I num$ers are nt re'eased t the "u$'i# in the

detai' avai'a$'e !r the W*I( This hwever des nt a""ear t $e an insurmunta$'e

 "r$'em t address& $e#ause the detai'ed data is #''e#ted, it is 4ust nt made "u$'i#

with su!!i#ient time'iness(

The Wr%ing 5ru" !r Revisin ! Wh'esa'e *ri#e Index Num$ers

OEA6I** 178892 dis#ussed the #nstru#tin ! a new weighting s#heme( The re"rt

 "inted t the inherent di!!i#u't+ ! de!ining the #n#e"t ! the universe ! the W*I(

Whi'e in "rin#i"'e& the W*I shu'd #m"rise a'' transa#tins at !irst "int ! $u'% sa'e

in the dmesti# mar%et& in "ra#ti#e& hw t a##unt !r these transa#tins& and what

sur#es t use& are issues that remain "en t inter"retatin( Furthermre& the

weighting #u'd $e $ased n the ntin ! va'ue added& !ina' demand r grss ut"ut(

The a""ra#h under'+ing W*I re'ies n tw #n#e"ts grss va'ue ! ut"ut !r 

manu!a#tured "rdu#ts and va'ue ! mar%eted sur"'us !r agri#u'tura' "rdu#ts(

What is the difference between WPI and CPI inflation?

Wh'e/sa'e "ri#e index 1W*I2 and )nsumer "ri#e index 1)*I2 are the tw

 "rimar+ measures ! in!'atin( 0e!re& "r#eeding t %nw the di!!eren#e $etween the

tw index measures !r in!'atin& 'et us understand what an index signi!ies An index

!igure re!'e#ts the #hange in a set ! ass#iated varia$'es ver a time "erid and in a

 "arti#u'ar dire#tin( Thus& "ri#e index is re!'e#tive ! the tta' #hange in "ri#e 'eve' "aid $+ a "rdu#er r #nsumer( In the Indian #ntext& ; natina' indi#es are

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a##unted !r in!'atin measure that in#'ude W*I and ther !ur )*I indi#es( W*I

index re!'e#ts average "ri#e #hanges ! gds that are $ught and s'd in the

wh'esa'e mar%et( W*I in India is "u$'ished $+ the O!!i#e ! E#nmi# Adviser&

Ministr+ ! )mmer#e and Industr+( Further& the data !r W*I is mnitred and

u"dated n a wee%'+ $asis ta%ing int a##unt a'' the <=< items that !rm the index(

The varius #mmdities ta%en int #nsideratin !r #m"uting the W*I #an $e

#ategri>ed int "rimar+ arti#'e& !ue' and "wer& and manu!a#tured gds(

*rimar+ arti#'es in#'uded !r the #m"utatin ! W*I in#'ude !d arti#'es&

nn/!d arti#'es and minera's( In the !ue'& "wer& 'ight and 'u$ri#ants& e'e#tri#it+&

#a' mining and minera' i' are in#'uded( The manu!a#tured gds #ategr+

en#m"asses !d "rdu#ts, $everages& t$a##& and t$a## "rdu#ts, wd and

wd "rdu#ts& texti'es, "a"er and "a"er "rdu#ts, $asi# meta's and a''+s, ru$$er 

and ru$$er "rdu#ts and man+ thers( An& im"rtant "int t ta%e nte ! is the wh'e

sa'e "ri#e index 1W*I2 des nt in#'udes the #st ! servi#es( Further& as W*I

a##unts !r #hanges in genera' "ri#e 'eve' ! gds at wh'esa'e 'eve'& it !ai's t

#mmuni#ate a#tua' $urden $rne $+ the end #nsumer(

W*I is the "rimar+ measure that is used $+ the Indian #entra' gvernment !r 

as#ertaining in!'atin as W*I in #ntrast t )*I a##unts !r #hanges in "ri#e at an

ear'+ distri$utin stage( In #ntrast& )*I is #m"uted $+ exe#uting a weighted

average n a "arti#u'ar set ! gds and servi#es( The #m"utatin ! )*I ta%es int

a##unt "ri#e #hanges and the a#tua' in!'atin that a!!e#ts the end #nsumer( )*I is

thus a re!'e#tin ! #hanges in the retai' "ri#es ! s"e#i!ied gds and servi#es ver a

time "erid whi#h are traded $+ "arti#u'ar #nsumer(

Producer Price Indexes (PPI) –

These are indi#es that measure the average #hange ver time in se''ing "ri#es

 $+ "rdu#ers ! gds and servi#es( The+ measure "ri#e #hange !rm the "int ! 

view ! the se''er( Ma4rit+ ! OE)6 #untries measure in!'atin $ased n *rdu#er 

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*ri#e Index 1**I2 whi'e n'+ sme thers use W*I( )untries 'i%e ?a"an& 5ree#e&

 Nrwa+ and Tur%e+ use W*I( A'read+ W*I has $een re"'a#ed in mst ! the

#untries $+ **I due t the $rader #verage "rvided $+ the **I in terms ! 

 "rdu#ts and industries and the #n#e"tua' #n#rdan#e $etween **I and s+stem the

natina' a##unt( **I is #nsidered t $e mre re'evant and te#hni#a''+ su"erir 

#m"ared t ne at wh'esa'e 'eve'( @wever& in India we are sti'' #ntinuing with

W*I(

Cost-of-livin indices (C!"I):

This is di!!erent !rm )*I( This index aims t measure the e!!e#ts ! "ri#e

#hanges n the #st ! a#hieving a #nstant standard ! 'iving 1i(e( Leve' ! uti'it+ r 

we'!are2 as distin#t !rm maintaining the "ur#hasing "wer t $u+ a !ixed

#nsum"tin $as%et ! gds and servi#es( Maintaining a #nstant standard ! 'iving

des nt im"'+ #ntinuing t #nsume a !ixed $as%et ! gds and servi#es( A )OLI

a''ws !r the !a#t that huseh'ds wh see% t maximi>e their we'!are !rm a given

ex"enditure #an $ene!it $+ ad4usting their ex"enditure "atterns t ta%e a##unt ! #hanging re'ative "ri#es $+ su$stituting gds that have $e#me re'ative'+ #hea"er&

!r gds that have $e#me re'ative'+ dearer( The use r "re!eren#e !r a "arti#u'ar 

gd ma+ a's #hange(