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LATEST NEWS UPDATES | Government put out a new price index, but annual nos. only next Jan

Government put out a new price index, but annual nos. only next Jan

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published Published on Feb 19, 2011   modified Modified on Feb 19, 2011
The government put out a promised new price index on Friday that will capture changes in prices of goods and services sold at the retail level, helping the government and the central bank get a better grip on policy tools while tackling inflation.

Central banks world over rely on retail prices while framing monetary policy, but the Reserve Bank of India has had to consider mostly the wholesale price index for want of a better measure of prices at the consumer level. Policymakers and economists will, however, have to wait for a year before this index yields a measure of annual inflation. The data put out by the goverment on Friday assume a base of 100 for the whole of 2010 and peg the index for January 2011 at 106.

However, it will be erroneous to compute retail inflation at 6% for January 2011 as the 100 base value is for the entire 2010 and not for January of that year. So the first set of annual retail inflation numbers will be available only from January 2012. From next month, the sequential increase in prices can be annualised to get annual inflation, but that will have to be seasonally adjusted.

The annual measures by their nature take care of seasonal swings in prices. "India lacked a comprehensive measure of inflation. The new CPI fills that gap and should become a measure of headline inflation for the economy," Crisil chief economist DK Joshi said, adding that the WPI only measured changes in prices of goods and represented only about 45% of the economy.

Inflation based on the WPI remained stubbornly high at 8.23% for January. In the existing CPI series, issued by the labour ministry, which will continue alongside the new series, inflation for industrial workers was 9.47% in December. The ministry of statistics and programme implementation, which launched the new series, released different indices for measuring price increase in rural and urban areas. In the new CPI series, the housing component of the index includes services such as education, medical care and recreation.

At present, the government releases four series for mapping consumer prices -- consumer prices index for agricultural labour, rural labour, industrial workers and urban non-manual employees. But these sectoral indices suffer from locational bias as industrial workers were more likely to be found in certain areas and so would the agricultural labourers. Also, the data quality is poor.

As per the new series, rural prices had gone up by 7% in January over the average prices last year while urban prices had risen by 4%. "The rural/urban and state level sub-classification of index will facilitate regional monitoring of inflation as well," said Joshi. The coverage of the new index is wider both in terms of items and locations. Retail price increase was higher in the rural areas on aggregate and almost all of the sub-indices.

The Economic Times, 19 February, 2011, http://economictimes.indiatimes.com/news/economy/indicators/government-put-out-a-new-price-index-but-annual-nos-only-next-jan/articleshow/7525644.cms


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