Ajit Purohit on Mon, Nov 25th, 2013 6:09:48 pm
I feel CPI indices should be taken because it contains food products, which is more volatile than any other.
Deepa Vasudevan on Mon, Nov 25th, 2013 9:54:47 am
Hi Mr. Sreenivasan,
Here are some answers to the queries that you have raised -
1. Who decides the weightage of the various parameters that form both the indices?
The weights of the parameters of CPI and WPI were decided by the Central Statistical Organization, under the ministry of statistics and programme implementation. The process of changing or fixing weights is complex, usually a committee of experts is set up, some surveys on consumption pattern are carried out, and the experiences of other countries are drawn from.
2. What inflation index do developed economies follow and what are the constituents of the index. Why we as an economy do not follow a single index which will mirror the actual state of affairs rather than have two indices which cause confusion as mentioned in your blog?
Developed economies usually have two leading indice - a Purchasing Price Index (PPI) which refers to the prices of purchases made by manufacturers and a consumer price index (CPI). Monetary authorities target CPI, since that reflects the actual cost of living of common man. The PPI is a measure of cost of producers, so it may be used to study external competitiveness of a country. For example, if PPI for China rises, it may not be able to export as cheap as before. So it is impossible to have one index for any country. The key issue here is to ensure that the index is computed accurately, has good coverage, and is released in a timely manner.
Pramod Bajaj on Wed, Nov 20th, 2013 3:14:52 pm
Inflation is one of the highly debated figure for the Financial Planners for calculating the Goal amounts. WPI figures don't seem to be realistic for Investor's consumption and Goals for services like health care/education etc. However CPI figures also seem to be very high for Goal value calculations as its use make Goals highly ambitious. I feel that it is safer to consider CPI figure so as to take care of various life style consumption in future which we may not be able to visualise now.
chandrashekhar on Wed, Nov 20th, 2013 11:59:28 am
CPI will differ in rural & urban cases.as in rural vegetable cost is less compared to urban. In Urban area Service cost also get higher whereas in rural area service cost is negligible.RBI should consider CPI for deciding interest rate or rather allow to issue CPI linked bond for senior citizen.Higher CPI became common phenomena.due cascading effect of diesel prices rise every month.
Vikram Sreenivasan on Wed, Nov 20th, 2013 10:02:47 am
Some points to ponder. Who decides the weightage of the various parameters that form both the indices. Also, as a major part of CPI is food products which are relatively more volatile and that of WPI is mfg. products which is relatively less volatile, there will always be a sizable difference between CPI and WPI.
What infaltion index do developed economies follow and what are the constituents of the index.
Why we as an economy do not follow a single index which will mirror the actual state of affairs rather than have two indices which cause confusion as mentioned in your blog.
Harshad Ashar on Wed, Nov 20th, 2013 7:59:49 am
The article is titled as tough to choose. In fact even today for many of us it is tough to understand. U have made it very easy to understand. Thanks a lot for detailed information and also for related online reference.