Scary inflation figures may not be bothering the common man
Even as inflation measured by the wholesale price index (WPI) has shot through the roof and crossed the double digit levels, the consumer price index (CPI) for industrial workers, which reflects the price levels for the common man, was stable.
By ET Bureau |
MUMBAI: Even as inflation measured by the wholesale price index (WPI) has shot through the roof and crossed the double digit levels, the common man has not felt the pinch so severely. In May, the consumer price index (CPI) for industrial workers, which reflects the price levels for the common man, was 7.85%. The average WPI inflation during the month was around 8.15%. In fact, CPI dipped marginally in May over April���s 7.75%. Interestingly, the CPI until earlier this year was higher than the WPI.
This variation in the CPI and WPI is largely because of difference in weightages assigned to different items in the respective baskets. The food basket in the WPI has a weight of 22.02%, while a slightly modified basket of food products in the CPI has a weight of 57%. Similarly, fuel group has a weightage of 14.23% in the WPI, but fuel and light have weight of only 6.28% in CPI. Besides, the WPI is inflated also because of a sharp rise in many items that are not used by the common man.
According to Edelweiss Capital economist Siddhartha Sanyal, of the average WPI inflation of 8.15% in May, weighted contribution of primary articles was around 200bps, that of mineral oils was 136 bps, metals 200 bps and chemicals about 60 bps. Of this, consumer prices are impacted less from price rise of chemicals, fuel and metals due to their comparatively lower weights in the CPI.
This bodes well for primary product prices in the coming months, according to a recent report by Citigroup. Sanyal points out that in June too, though the CPI will definitely be higher than the May 2008 level, it should be lower that the WPI inflation. This is because the weighted contribution of the primary commodities has not gone up substantially during June and the large direct impact of the fuel price hike in June on WPI inflation will be relatively muted on CPI due to fuel group���s lower weightage in the latter.
In recent period, there has been a lot of debate in the methodology and the relevance of the tow measures of inflation in the monetary policy making. The general consensus is that none reflect the true state of prices in the economy. Last week, RBI deputy governor Rakesh Mohan announced at a conference of statistical methods that the central bank will construct separate consumer prices indices for rural and urban areas. At present, the government���s ministry of statistics and programme implementation is entrusted with this job.
This variation in the CPI and WPI is largely because of difference in weightages assigned to different items in the respective baskets. The food basket in the WPI has a weight of 22.02%, while a slightly modified basket of food products in the CPI has a weight of 57%. Similarly, fuel group has a weightage of 14.23% in the WPI, but fuel and light have weight of only 6.28% in CPI. Besides, the WPI is inflated also because of a sharp rise in many items that are not used by the common man.
According to Edelweiss Capital economist Siddhartha Sanyal, of the average WPI inflation of 8.15% in May, weighted contribution of primary articles was around 200bps, that of mineral oils was 136 bps, metals 200 bps and chemicals about 60 bps. Of this, consumer prices are impacted less from price rise of chemicals, fuel and metals due to their comparatively lower weights in the CPI.
This bodes well for primary product prices in the coming months, according to a recent report by Citigroup. Sanyal points out that in June too, though the CPI will definitely be higher than the May 2008 level, it should be lower that the WPI inflation. This is because the weighted contribution of the primary commodities has not gone up substantially during June and the large direct impact of the fuel price hike in June on WPI inflation will be relatively muted on CPI due to fuel group���s lower weightage in the latter.
In recent period, there has been a lot of debate in the methodology and the relevance of the tow measures of inflation in the monetary policy making. The general consensus is that none reflect the true state of prices in the economy. Last week, RBI deputy governor Rakesh Mohan announced at a conference of statistical methods that the central bank will construct separate consumer prices indices for rural and urban areas. At present, the government���s ministry of statistics and programme implementation is entrusted with this job.
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