TV Channels blaring that India's inflation rate slipped into the negative for the first time in 30 odd years. What does it really mean ? It really means nothing to the common man!
Prices are still soaring or atleast stable at their peak - and why is this not reflected in the Inflation numbers ?
This is because India calculates Inflation differently than other countries
* India uses something called the Wholesale Price Index (WPI) to calculate and then decide the inflation rate in the economy.
* Most other developed and developing countries use the Consumer Price Index (CPI) to calculate inflation.
Whats the difference between the two ?
Wholesale Price Index (WPI)
WPI, published in 1902, is a economic indicator that was used by many policy makers and it was replaced by CPI by most countries in the 1970s
WPI measures the change in the average price level of goods traded in wholesale market. In India, about 435 commodities data on price level is tracked through WPI. This price index is published on a weekly basis with a lag of about 2 weeks.
Consumer Price Index (CPI)
The CPI or the Consumer Price Index is a statistical time-series measure of a weighted average of prices of a specified set of goods and services purchased by consumers. It tracks the prices of goods and services that consumers actually buy therefore providing a more accurate picture of the inflation.
Although India doesn't officially follow CPI - they do publish the CPI index numbers - however, only monthly with a delay of more than 2 months
While the WPI Inflation numbers have slipped into the negative and is reported to be at -1.6%, the CPI numbers are at a whopping 8.7% as declared for April 2009
Next time the inflation numbers are announced - you know what to make of it :)
2 comments:
Why is WPI used in our country while all other use CPI??
Indian market is unorganised in nature. A single commodity costs different at may be two side by side located shops. Hence to avoid this disparity and to decide on the price to be considered India takes the wholesale price of the commodities in order to produce the inflation figures. Thus the wholesale prices are considered to be a benchmark price of any commodity in India.
Wholesale price would mean the price at which a commodity is traded in its wholesale market.
India facing a negative inflation for three consecutive weeks. But we cant see any decrease in commodity prices. Why so??
The reason is very simple : Last year we saw inflation rising at high rates and this year the base effect has led to Deflationary figures.
And of course the slackening of demand has effected the same.
What does this mean for future ??
It means we will see high inflation figures next year due to the base effect.
So I think the reason is not about WPI or CPI its about the base effect. WPI is supposedly a better way to calculate inflation in our country.
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