What is the issue ?
- The government will come out with a Producers Price Index (PPI) next month for 10 services, including telecom and railways on experimental basis.
More about PPI :
While the incidence of taxes are accounted for in WPI and CPI, the PPI would reflect the cost at producers point sans taxes.
PPI measures the average change in the price a producer receives for his goods/services sold in the domestic market/exports.
In case of railways, price movement would be tracked for freight tariff and passenger fares. On the other hand, the index of banking would include direct services and fees.
The PPI for services assumes significance the sector contributes about 60%in the country’s gross domestic product (GDP).
Exisiting indices :
1. Wholesale Price Index :
- Wholesale Price Index (WPI) measures the average change in the prices of commodities for bulk sale at the level of early stage of transactions.
- The index basket of the WPI covers commodities falling under the three major groups namely Primary Articles, Fuel and Power and Manufactured products.
- The prices tracked are ex-factory price for manufactured products, mandi price for agricultural commodities and ex-mines prices for minerals.
- Weights given to each commodity covered in the WPI basket is based on the value of production adjusted for net imports.
- WPI basket does not cover services.
- In India WPI is also known as the headline inflation rate .
- In India, Office of Economic Advisor (OEA), Department of Industrial Policy and Promotion, Ministry of Commerce and Industry calculates the WPI.
The main uses of WPI are the following:
- To provide estimates of inflation at the wholesale transaction level for the economy as a whole. This helps in timely intervention by the Government to check inflation in particular, in essential commodities, before the price increase spill over to retail prices.
- WPI is used as deflator for many sectors of the economy including for estimating GDP by Central Statistical Organisation (CSO).
- WPI is also used for indexation by users in business contracts.
- Global investors also track WPI as one of the key macro indicators for their investment decisions
2. Consumer Price Index :
- CPI is a measure of change in retail prices of goods and services consumed by defined population group in a given area with reference to a base year. The consumer price index number measures changes only in one of the factors- prices.
- This basket of goods and services represents the level of living or the utility derived by the consumers at given levels of their income, prices and tastes.
- This index is an important economic indicator and is widely considered as a barometer of inflation, a tool for monitoring price stability and as a deflator in national accounts.
- The formula for calculating Consumer Price Index is Laspeyre’s with base year 2010.
- It is calculated by Central Statistics Office (CSO) in the Ministry of Statistics and Programme Implementation (MOSPI)
- It is brought out on monthly basis for urban, rural and all India. Also annually with lag of one month
- Presently the consumer price indices compiled in India are CPI for Industrial workers CPI(IW), CPI for Agricultural Labourers CPI(AL) and Rural Labourers CPI(RL) and CPI ( Urban) and CPI(Rural).
- The CPI(IW) and CPI(AL and RL) compiled are occupation specific and centre specific and are compiled by Labour Bureau.
- This means that these index numbers measure changes in the retail price of the basket of goods and services consumed by the specific occupational groups in the specific centres.