Why in News

Recently, the inflation data for the month of August 2020 was released. The inflation data includes retail inflation and wholesale inflation data.

• The retail inflation is measured by the Consumer Price Index (CPI).
• The wholesale price-based inflation is measured by Wholesale Price Index (WPI).

Key Points

• Retail inflation growth across the country eased to 6.69 per cent in the month of August, the data released by the Ministry of Statistics & Programme Implementation (MoSPI) showed.

  The retail inflation which is measured by the Consumer Price Index (CPI) for the month of July was also revised to 6.73 per cent from 6.93 per cent. Last month too, the government had revised the CPI data for June to 6.23 per cent from 6.09 per cent.

  Prior to June’s data, the government had not released the headline retail inflation data in April and May. However, in April, it had revised the CPI data for the month of March to 5.84 per cent from 5.91 per cent.

  The retail inflation has grown beyond the Reserve Bank of India’s (RBI) upper margin of 6 per cent. The government has mandated the Indian central bank to keep inflation within the range of 4 per cent with a margin of 2 per cent on either side.

  The central bank in its bi-monthly monetary policy meeting last month had kept its key interest rates on hold even as it vowed to keep policy sufficiently loose to help revive the coronavirus-battered economy.

  The Consumer Food Price Index (CFPI) or the inflation in the food basket eased to 9.05 per cent in the month of August. Also, the CFPI for July was revised to 9.27 per cent from 9.62 per cent, the data revealed.

  The growth in retail inflation was primarily due to a rise in meat and fish prices that saw a 16.50 per cent on-year rise in August. Apart from meat and fish segment, the pulses and products segment saw a rise of 14.44 per cent, while that of oils and fats rose 12.45 per cent and spices prices gained 12.34 per cent. The vegetables segment also witnessed a rise of 11.41 per cent.

Consumer Price Index

• It measures price changes from the perspective of a retail buyer. It is released by the National Statistical Office (NSO).
• The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use.
• The CPI has several sub-groups including food and beverages, fuel and light, housing and clothing, bedding and footwear.
• Four types of CPI are as follows:
  
  • CPI for Industrial Workers (IW).
  • CPI for Agricultural Labourer (AL).
  • CPI for Rural Labourer (RL).
  • CPI (Rural/Urban/Combined).
  • Of these, the first three are compiled by the Labour Bureau in the Ministry of Labour and Employment. Fourth is compiled by the National Statistical Office (NSO) in the Ministry of Statistics and Programme Implementation.
• Base Year for CPI is 2012.
• The Monetary Policy Committee (MPC) uses CPI data to control inflation.

Wholesale Price Index

• It measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.
• Published by the Office of Economic Adviser, Ministry of Commerce and Industry.
• It is the most widely used inflation indicator in India.
• Major criticism for this index is that the general public does not buy products at wholesale price.
• The base year of All-India WPI has been revised from 2004-05 to 2011-12 in 2017.

CPI vs. WPI

• WPI, tracks inflation at the producer level and CPI captures changes in prices levels at the consumer level.
• WPI does not capture changes in the prices of services, which CPI does.
• In April 2014, the RBI had adopted the CPI as its key measure of inflation.