Inflation: India

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i) Inflation in India, China and major economies in 2016l
ii) The worst cases of hyperinflation in world history.
The Times of India

This is a collection of articles archived for the excellence of their content.


Measuring inflation: Wholesale Price Index (WPI) and Consumer Price Index (CPI)

Inflation , India Today , September 1,2016
Wholesale Price Index (WPI) and Consumer Price Index (CPI): 2014, 2015; Graphic courtesy: The Times of India, Jun 08 2015

The Times of India, Jun 08 2015

The Wholesale Price Index (WPI) and Consumer Price Index (CPI) are two ways of measuring inflation. Because of different constituents and weights for them, the inflation rates measured by both indices are often different. What is noticeable in recent months is that the two indices are showing divergent trends. The CPI indicates that there has been a rise in prices, while the WPI suggests that prices have fallen.One reason for this could be that food prices, which constitute a much larger part of the CPI, are up significantly over the last year.SOURCE: MOSPI, Office of the Economic Adviser; Research: Atul Thakur; Graphic: Asheeran Punjabi

Why all-India inflation is misleading

The Times of India, Feb 16 2017

See graphic.

Change in consumer prices, 2012-17, rural-urban and state-wise; The Times of India, Feb 16 2017

Every month the government releases national inflation data that is widely publicised and analysed. What goes unnoticed is the data on state-wise inflation, which is far closer to price rise (or fall) families have to live with. As the charts below show, some states have double the rate of inflation than others. Over the past five years, rural consumers had to live with a higher rate of inflation than urban Indians

Impact of Inflation on wealth


How inflation eroded wealth in India, 1984- 2016; The Times of India, March 13, 2017

See graphic:

How inflation eroded wealth in India, 1984- 2016

Retail inflation

2016, Sep- 2018, Feb

i) Industrial output, October 2016-June 2018;
ii) Manufacturing activity, January 2017-January 2018;
iii) Retail inflation, September 2016-February 2018;
iv) annual % change in prices of pulses, spices and sugar, as in February 2018
From: March 13, 2018: The Times of India

See graphic:

i) Industrial output, October 2016-June 2018;
ii) Manufacturing activity, January 2017-January 2018;
iii) Retail inflation, September 2016-February 2018;
iv) annual % change in prices of pulses, spices and sugar, as in February 2018

Wholesale Price Index (WPI)


The Times of India, Aug 15 2015

Wholesale inflation lowest since '76

Falls for 9th month in a row to -4.1%, longest negative stretch since '75

Wholesale prices plunged for the ninth consecutive month in July on the back of a decline in food and fuel prices, raising prospects of a cut in interest rates to give a push to growth. This was the lowest level of the inflation based on wholesale price index (WPI) since 1976 and, according to economists, is the longest stretch of negative wholesale prices in the country since 1975.WPI inflation was in negative zone for 12 months between July 1975 and June 1976. Data released by the commerce ministry showed the wholesale inflation fell 4.05% in July compared to a decline of 2.40% for the previous month and 5.41% during the corresponding month of the previous year.

The sharp dip in WPI comes close on the heels of the significant moderation in retail inflation in July and together the two data sets have fuelled expectations of a cut in interest rates.

Food inflation fell 1.16% year-on-year in July , while vegetable prices fell 24.52% during the month. The price of pulses continued to remain a worry as it rose 35.75% in July .

India Inc stepped up its call for a reduction in interest rates, citing sharp decline in both WPI and CPI inflation data.“The distinct downturn in both retail and headline inflation and soft inflationary scenario makes a strong case for RBI to resume its accommodative policy stance,“ CII said.

Oct. 2015- Mar. 2016: steady decline

The Times of India, Apr 19 2016

Wholesale prices, fastest rate and steepest rate, item-wise, October 2015-March 2016; Graphic courtesy: The Times of India, April 19, 2016

Wholesale prices contract for 17th month in a row  Wholesale prices contracted for the 17th consecutive month in March on the back of sliding crude oil and manufactured product prices, adding to expectations of further interest rate cuts in the months ahead.

Data released by the commerce and industry ministry showed the annual rate of inflation, based on the wholesale price index, stood at -0.85% in March compared to -0.91% for the previous month and -2.33% during the corresponding month of the previous year.

Food inflation rose to 3.7% in March 2016 from 3.4% in February 2016 as prices for cereals, milk, eggs, meat & fish and vegetables firmed up. Price of pulses remained a concern, rising 34.4% in March 2016 but the pace of increase was slower than the previous month. Onion prices fell 17.7% in March compared to 13.2% in February .

“Since the prices of primary articles and manufac turing products are increasing, though marginally , it may pose a threat for WPI inflation in the upcoming months. In recent times, fuel prices have been easing, which may help to keep the inflation rates in the negative territory ,“ said Madan Sabnavis, chief economist at Care Ratings.

“The base effect may also wear off as the year progresses and we do expect WPI inflation to enter the positive zone in the next couple of month. However, this would not be a concern,“ Sabnavis added.

The widely watched reta il inflation slowed in March to a six-month low of 4.83% from a year earlier, stoking expectations of a reduction in interest rates.

RBI reduced interest rates by 25 basis points earlier this month and promised to ease rates in the months ahead if inflation remained within the central bank's comfort zone. Economists said they expect inflation to stay benign for now.

“After easing for several consecutive months, prices of pulses have hardened in the first half of April 2016.Moreover, prices of certain vegetables have risen in the last fortnight in line with seasonal trends during the summer months. However, the recent decline in prices of onions following the harvest is likely to offer some relief.While the trajectory of crude oil prices remains crucial, at present we expect WPI inflation to print in a narrow range of +0.5% in Q1 FY2017,“ said Aditi Nayar, senior economist at ratings agency ICRA.

Base year shifted to 2011-12; food index added

WPI gets revised base year, new food index, May 13, 2017: The Times of India

Wholesale inflation, April 2016-March 2017, with base year 2011-12 and 2004-05; WPI gets revised base year, new food index, May 13, 2017: The Times of India

The government revised the wholesale price index (WPI) by shifting to a new base year of 2011-12 from 2004-05 and added a new WPI food index to capture the rate of inflation in food items. Revision of macroeconomic data is undertaken to reflect changes in the economy . The WPI series had undergone six revisions in the past. Apart from a new base year, the revision also includes change in the basket of commodities and assigning of new weights.

Under the revamped data series, the number of items have gone up to 697 from 676.The data now has 199 new items and 146 items have been deleted and has quotations from 8,331 sources compared with 5.482 in the old series. In the new WPI series, prices used for compilation do not include indirect taxes in order to remove the impact of fiscal policy. This is in line with international practices and moves the WPI closer to the producer price index.

Seasonality of fruits and vegetables has been updated to account for more months as these are now available for longer duration. The government has also set up a technical review committee, which will ensure that the product mix keeps pace with changing structure of the economy.

Under primary articles, new vegetables and fruits such as radish, carrot, cucumber, bitter gourd, mosambi, pomegranate, jack fruit, pear have been added. Around 173 new items have been added under the manufactured products category, while 135 items have been dropped. The new WPI food index will be compi led by combining food articles under primary articles and food products under manufactured products. Retail inflation slowed to its lowest level in five years in April, raising expectations of an interest rate cut by the RBI. Inflation as measured by CPI rose 3% in April, slower than previous month's 3.9%.


June 15, 2018: The Times of India

Wholesale and retail inflation in India, 2017-18
From: June 15, 2018: The Times of India

Inflation based on wholesale prices shot up to a 14-month high of 4.4% in May on increasing prices of petrol and diesel, prompting industry to demand action from policymakers to keep fuel prices under check.

The Wholesale Price Index (WPI) based inflation stood at 3.2% in April and 2.3% in May last year. According to government data released on Thursday, inflation in food articles was at 1.6% in May 2018, as against 0.9% in the preceding month.

Inflation in ‘fuel and power’ basket rose sharply to 11.2% in May from 7.9% in April as prices of domestic fuel increased in line with rising global crude oil rates. Inflation in vegetables climbed to 2.5% in May, with potato inflation at a peak of 81.9%. Price rise in fruits was in double digits at 15.4%, while pulses saw a deflation of 21.1%. May inflation at 4.4% was a 14-month peak. The previous high was in March 2017, when WPI inflation stood at 5.1%.

Industry chamber Assocham called for government action to tame fuel price rise, saying increasing prices of petrol and diesel may significantly impact import bills, which may subsequently have an impact on exchange rates. “Besides, it might also negatively impact input prices for the industry which has already started feeling the pressure on its profitability,” Assocham secretary general D S Rawat said.

Icra principal economist Aditi Nayar said core WPI inflation rose sharply to 4.4% in May from 3.6% in the previous month, with a rise in 15 of the sub-indices. This reflects the pass through of higher input costs, and a weaker rupee. “The WPI inflation is expected to harden by up to 0.8% before easing somewhat in the July-September quarter. Key factors that would influence the inflation trajectory include the level at which global crude oil prices stabilise and the extent to which they are transmitted to domestic fuel prices, the trend in the monsoon dispersion and the extent of change in MSPs,” Nayar said. The WPI inflation for March has been revised upwards to 2.7% from the provisional estimate of 2.5%.

In its second monetary policy review for the fiscal, RBI hiked interest rate by 0.25% due to growing concerns about inflation stoked by rising global crude prices and domestic price hikes.

Price rise: Jan 2010-July 2014

Pricey Places

The Times of India Aug 30 2014

Between Jan 2010-July 2014, India has seen retail prices rise 35.6% on average, equivalent to an annual rate of about 7%. But different states have witnessed varying levels of price rise.

Consumer Price Index (CPI)

Measuring price rise: CPI’s consumption basket

The Times of India, Sep 14 2015

India and the world: Inflation in July 2015; Graphic courtesy: The Times of India

Low weightage to pulses in CPI helped check price rise  How is price rise measured?

There are two widely accepted ways of measuring price rise or inflation: the wholesale price index (WPI) and the consumer price index (CPI). The WPI is designed to measure trends of wholesale prices of goods. In short, it tracks the farm and factory gate price of commodities before they reach the retail market. Services are not included in the WPI. The CPI, on the other hand, measures the general level of retail prices of goods and services consumed by households. From a consumer's point of view, it is the CPI that is more meaningful.

What commodities are included in the WPI and what is the base year?

The price index is measured with respect to a particular year called the base year. The base year chosen should be one in which prices were normal and not affected by some unusual natural calamity or international crisis. For the measurement of the current WPI in India, 2004-05 is the base year while for the CPI, 2012 is the base year. The WPI aims to capture all commodity trans actions carried out in the domestic market and hence it includes most of them. Weights are assigned to different commodities on the basis of the proportion of that commodity's transactions to all wholesale transactions in the economy .

How is the CPI's consumption basket made?

The consumption basket of the CPI is meant to represent all households in the country. For instance, the new CPI index includes all items which more than 75% of the country's households have reportedly consumed.Weights are assigned to various CPI commodities on the basis of average monthly consumption expenditure on these items discovered as part of a survey.

Why do the CPI and WPI show divergent inflation trends?

According to the latest data, inflation measured at the wholesale level was -4.05% for July 2015 when compared to July 2014. For the same period, the combined inflation rate for rural and urban consumers was 7.39%. This anomaly is attributed to several reasons. The most important is the weight of various commodities. For instance, the highest weight in CPI is given to food items, which comprise about 54.2%.In the WPI, the corresponding weight is just 14.3% and hence the high food price inflation that is troubling the country affects this index much less. Apart from this there is a tendency to counter the increase in the cost of raw materials by giving below normal wage increases to workers. In that case, the WPI will be low, but not the CPI.

Why are soaring pulse prices not reflected in the CPI?

The CPI is based on the actual consumption pattern of households and its composition is revised from time to time, with weights of various commodities changing according to their consumption. If prices of pulses continue to rise rapidly , their weight in the index will also go up unless the price increase is offset by a decline in their consumption. The present CPI food basket, however, gives a higher weight to milk and milk products, vegetables, prepared meals, meat and fish, sugar and spices than to pulses. The low weight for pulses explains why their price increase has only a minor impact on the CPI as a whole.

November 2016: CPI data

The Hindu’’, December 14, 2016

Retail inflation at 2-year low

Retail inflation, measured by consumer price index (CPI), fell to a two-year low in November 2016 at 3.63 per cent, as depressed consumer demand following demonetisation disrupted daily life.

The CPI print, November 2016 — well below the RBI’s five per cent inflation target for March 2017 — has raised hopes of central bank going in for a repo rate cut at its next monetary policy review meeting.

Note ban effect

The note ban had a telling effect on food articles inflation — 47 per cent weight in CPI —which declined to 2.11 per cent in November from October’s 3.32 per cent.

Food articles inflation in November last year stood at 6.07 per cent.

Overall CPI inflation stood at 5.41 per cent in November in 2015, and at 4.20 per cent in October 2016

State-wise data on inflation, 2015

Dec. 2015: Wide variations across states

The Times of India Feb 02 2016

Annual CPI Inflation rate (%) major states (Dec 2015), Rural and Urban

Inflation in December was 4.7% for urban India and 6.3% for rural India. But this all-India average figure is of little use to the common man. We don't really live in India, we live in one of its states.And inflation rate varies hugely across states. As hugely as 7.5% in urban Andhra Pradesh and only 2.5% in urban Himachal Pradesh--that's a gap of 5 percentage point. Difference between highest and lowest rural inflation was even greater: 6.6%

State-wise inflation: 2015-16

Food inflation. Rise in the price of potatoes, 2015-16, and tomatoes, 2014-16; Graphic courtesy: The Times of India, June 17, 2016
State-wise inflation, 2015-16; Graphic courtesy: The Times of India, June 17, 2016

See graphics

Food inflation. Rise in the price of potatoes, 2015-16, and tomatoes, 2014-16

State-wise inflation, 2015-16

2018, Aug: Bengal, Assam, J&K 4 times higher than Rajasthan

Most and least expensive states in India, August 2018
From: September 15, 2018: The Times of India
High and low inflation states in 2018, August
From: September 15, 2018: The Times of India

See graphics:

Most and least expensive states in India, August 2018

High and low inflation states in 2018, August

See also

Demonetisation of high value currency- 1946, 1978: India

Demonetisation of high value currency- 2016: India

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