Daily News Analysis

CPI BASKET CONCEALS THE INFLATION PICTURE

stylish_lining

CPI BASKET CONCEALS THE INFLATION PICTURE

India's consumer price index (CPI) inflation rose to 4.81% in June 2023, higher than expectations but still below the RBI's upper tolerance limit of 6%. The spike was driven by a less supportive base and a surge in vegetable prices. 

  1. India's consumer price index (CPI) inflation rises for the first time in five months to 4.81% in June 2023.
  2. Also, the rise in inflation is higher than the street's expectations of 4.58%, nevertheless, the CPI print is still below RBI's upper tolerance limit of 6%.
  3. CPI was pushed higher than expected due to a less supportive base and the onset of a surge in vegetable prices. Food inflation spiked to 4.49% in June.

 

 

What is CPI?

The Consumer Price Index (CPI) is a price index that measures the average price of a basket of items over a given period of time. The Consumer Price Index (CPI) determines the average price paid by customers to merchants. The CPI includes necessities such as food, clothing, housing and includes services like medical care, transportation, and education.

Facts:

  1. The Consumer Price Index (CPI) is a measure of price changes in a basket of consumer goods and services purchased by households.
  2. CPI is a numerical estimate based on the rates of a selection of typical objects whose prices are collected on a regular basis.
  3. The Consumer Price Index (CPI) measures price fluctuations at the consumer level.
  4. The CPI is divided into eight categories: education, communication, transportation, recreation, clothes, foods and beverages, housing, and medical care.
  5. The CPI is published by the National Statistical Office (NSO) under the Ministry of Statistics and Program Implementation.
  6. The CPI uses a base year set at 2011-2012.
  7. The CPI is published on a monthly basis.
  8. The Wholesale Price Index tracks price changes at the producer level (WPI).

 

How is CPI calculated?

The Consumer Price Index, or CPI, measures changes in the price of a common basket of goods and services by comparing current prices to prices from the previous year's similar time.

CPI is calculated using the following formula:

 

 

Types of CPI

There are 4 different types of CPI measured:

CPI for Industrial Workers (CPI-IW)

  • It attempts to quantify changes in the pricing of a fixed basket of products and services used by Industrial Workers over time.
  • A typical working-class family from any of these seven economic sectors, ranging from industries, mines, plantations, motor transport, port, railways, and energy generation and distribution, would be the target demographic.
  • The Labour Bureau compiled this list. This functions under the Ministry of Labour and Employment.

CPI for Agricultural Laborers (CPI-AL)

The Labor Bureau compiles this data to help revise minimum wages for agricultural labor in different States.

CPI for Rural Labourer (CPI-RL)

The Labour Bureau compiled this list. This functions under the Ministry of Labour and Employment.

CPI ( Urban Non-Manual Employees) (CPI-UNME)

  • This information is compiled by the Central Statistics Office (CSO), which is now known as the National Statistical Office (NSO).
  • The Ministry of Statistics and Program Implementation oversees the NSO.

 

Base Year Revision and new terminologies

  • In its Report (2001), the National Statistical Commission (NSC), led by Dr. C. Rangarajan, proposed the compilation of CPI for rural and urban areas.
  • The Standing Committee on Finance (2009-10) also accepted the NSC (2001) report (15th Lok Sabha, 6th Report on Inflation and Price Rise)
  • With effect from January 2011, the Central Statistics Office (CSO), Ministry of Statistics, and Programme Implementation began issuing Consumer Price Indices (CPI) on a monthly basis for all of India and States/UTs, separately for rural, urban and combined.
  • In January 2011, the CPI (R), CPI (U), and CPI (C) with Base Year 2010 were issued.
  • Then in 2015, from 2010 to 2012, the base CPI was updated.

Components of CPI

The following are the primary components of CPI (C): (along with their weights)

  • Food and Beverage – 45.86;
  • Food and Beverage – 45.86;
  • Housing – 10.07;
  • Fuel and Light – 6.84;
  • Clothing and Footwear – 6.53;
  • Pan, tobacco, and intoxicants – 2.38;
  • Miscellaneous – 28.32;

Note: Housing inflation is not factored into the CPI (R)

Significance of CPI

  • CPI (C) has been utilized as a nominal anchor for the conduct of monetary policy in India since the RBI established Inflation Targeting.
  • The Monetary Policy Committee is required to keep the CPI (C) in the range of 2% to 6%. As a result, the CPI is used to target inflation.
  • In the National Accounts, CPI is also utilized as a deflator.
  • The Consumer Price Index (CPI) is also used to calculate Dearness Allowance.

CPI chosen instead of WPI

  • CPI was used as an inflation indicator in India from 2014, replacing WPI.
  • CPI indicates the inflation rate at the consumer level which is a better indicator than the Wholesale Price Index (WPI).
  • CPI includes services such as medical care and education which are not included in WPI. These services are essential to gauge the inflation rate.

 

 

 

 

 

INS Nistar

The Nistar is India’s first indigenously designed and constructed Diving Support Vessel, marking a step forward in the country’s naval self-reliance. Key Highlights of the Nistar:
Share It

National Commission for Minorities (NCM)

The National Commission for Minorities is currently facing a leadership vacuum. Since the retirement of the previous Chairperson and members in April 2025, the Commission is awaiting the appointme
Share It

North Eastern Region (NER) District Sustainable Development Goals (SDG) Index Report (2023-24)

The second edition of the North Eastern Region (NER) District Sustainable Development Goals (SDG) Index Report was recently released by NITI Aayog, in collaboration with the Ministry of Developmen
Share It

Corporate Average Fuel Efficiency

The study by Nomura researchers calls for reform of India’s Corporate Average Fuel Efficiency (CAFE) norms, particularly to better protect small cars. Key Highlights of the Study: 1.
Share It

Delhi’s Fuel Ban for Old Vehicles

The Delhi Government has faced considerable backlash following its fuel ban for old vehicles under a directive from the Commission for Air Quality Management (CAQM). The ban was implemented to cur
Share It

India State of Forest Report (ISFR) 2023

The India State of Forest Report (ISFR) 2023 has sparked controversy by attributing part of the negative change in forest cover to the Forest Rights Act (FRA), 2006. The claim has been contested b
Share It

International Treaty on Plant Genetic Resources for Food and Agriculture

The International Treaty on Plant Genetic Resources for Food and Agriculture (ITPGRFA) is a crucial international agreement that plays a key role in the conservation and sustainable use of plant g
Share It

Green Climate Fund (GCF)

The Green Climate Fund (GCF) has recently approved over USD 120 million to support climate resilience projects in Ghana, the Maldives, and Mauritania. This funding aims to assist these countries i
Share It

Quad Critical Minerals Initiative

The Quad Critical Minerals Initiative launched by the United States, India, Australia, and Japan marks a significant shift in global geopolitics and economic strategy, especially with regard to cr
Share It

NITI Aayog's Proposal

NITI Aayog's proposed roadmap to boost India's chemical exports is a significant step toward enhancing the country's position in global chemical supply chains and addressing existing i
Share It

Newsletter Subscription


ACQ IAS
ACQ IAS