Mumbai: The Reserve Bank of India is planning to bring a new Consumer Price Index (CPI) as the present indices, both the CPI and the 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 divergence between the Wholesale Price Index (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 bring the characteristics of the present Wholesale Price Index and the Consumer Price Index, both for the urban and rural people, together, analysts 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 for the rich and the poor, the rural and the urban and also 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.
Making a comment on inflationary trend, he said, the inflation rate accelerated steadily from an annual average of 1.7% during the 1950s to 6.4% during the 1960s and further to 9% in the 1970s before easing marginally to 8% in the 1980s.
However, the inflation rate declined from an average of 11% during 1990-95 to 5.3% during the second half of the 1990s (1995-2000) and further to 4.9% during 2003-07, he said.
More recently during 2006-07, WPI-based inflation rate increased from 4.1% at the end of March 2006 to an intra-year peak of 6.7% at end-January 2007 and remained firm in the range of 6.1-6.6% in the succeeding weeks before moderating to 5.7% by the end of the financial year, he added.