4newsw131010 rbi

RBI

Monthly Bulletin

October 2010 2071

ARTICLE

New Series of Wholesale

Price Index Numbers

(Base: 2004-05=100)

New Series of WholesalePrice Index Numbers(Base: 2004-05=100)*

* Prepared in the Statistical Analysis Division,

Department of Statistics and Information Management.

Previous article entitled ‘New Series of Wholesale Price

Index Numbers (Base 1993-94=100)’ was published in

RBI Bulletin June 2000.

The Wholesale Prices Index (WPI)

with base year 1993-94=100 reflected the

structure of economy nearly 15 years ago.

In order to adequately capture the current

structure of the economy, Office of

Economic Adviser, Ministry of Commerce

and Industry, Government of India,

shifted the base year of WPI to 2004-

05=100 from 1993-94=100. At the

aggregate level, the price trend as well as

inflation of new series is similar to those of

the old series. However, there are a number

of significant changes in the new series in

terms of weighting diagram, coverage,

and price collection mechanism. There is

a reduction in the weight of 'Primary

Articles' by 1.9 percentage points. On the

other hand, weights of 'Fuel and Power'

and 'Manufactured Products' have gone

up by 0.7 percentage points and 1.2

percentage points, respectively. In terms

of coverage, the number of commodities

in the new series has gone up significantly

to 676, as compared to 435 commodities

of the earlier series. Further, in order to

ensure a better representation of price,

the number of price quotations has also

increased significantly to 5,482 from

1,918 price quotations of the old series.

Way forward, the latest WPI revision is

a welcome development and will be better

representative of overall inflation of the

economy.

The series on Index Numbers of

Wholesale Prices with base 1993-94=100 had

been in use since April 2000. As the WPI with

base 1993-94=100 was not adequately

reflecting the current structure of the

economy, the Ministry of Commerce and

Industry, Department of Industrial Policy and

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Price Index Numbers

(Base: 2004-05=100)

RBI

Monthly Bulletin

October 20102072

Promotion, Government of India, constituted

a Working Group for the revision of the WPI

series on December 26, 2003 under the

Chairmanship of Prof. Abhijit Sen, Member,

Planning Commission. Ever since the

introduction of the Wholesale Price Index

(WPI) on a regular basis, so far six revisions

have taken place introducing the new base

years, viz., 1952-53 (effective April 1956),

1961-62 (effective July 1969), 1970-71

(effective January 1977), 1981-82 (effective

January 1989), 1993-94 (effective April 2000)

and now 2004-05 (effective August 2010)1

. The

basic feature of any price index updation is to

adequately capture the current structure of the

economy, which is consistent with prevailing

price trend, preferences and consumption

pattern. In this context, revision of base of a

price index entails a shift of the reference year,

change in basket of commodities and

assigning new weights to commodities.

The Working Group was entrusted, inter

alia, with the task of examining commodity

coverage, selection of base year and

derivation of an appropriate weighting

diagram. The original terms of reference of

the Working Group included 17 critical

points. Some of the other relevant issues

included are selection of markets/centers/

sources for obtaining price quotations,

effective method of price collection,

treatment of seasonal items, addition of new

products gaining importance, adjustment for

changes in the quality of products,

construction of producer price index,

strengthening of computer network for price

data collection, etc. In order to facilitate in-

depth deliberations on different sectors, the

Working Group had set up four Sub-Groups

for the special tasks. These were the Sub-

Groups on ‘Analytical and other related

issues’, ‘Agricultural Commodities’,

‘Manufactured items’, and ‘Unorganised/

Unregistered Sector’. A majority of the

recommendations of these Sub-Groups

provided the basic foundation towards the

revision process. The Working Group

submitted its technical report in May, 2008.

At the time of submission of the Technical

Report, the commodity basket and quotations

for these commodities were not finalised

because of a poor response. The Working

Group, therefore, could not look into the

comparative picture of the prices in the

existing series and the proposed revision.

The Working Group, however, gave detailed

recommendations with regard to the choice

of base year, the method of selection of

items, preparation of weighting diagram and

collection of prices. Subsequently, the

Technical Advisory Committee (TAC) on

Statistics on Prices and Cost of Living (SPCL)

examined the new series of WPI with 2004-

05 as the base and endorsed the Working

Group recommendation of shifting the base

year from 1993-94 to 2004-05. Finally, the

Economic Advisory Council (EAC) to the

Prime Minister (PM) agreed with (a) shifting

the base year to 2004-05, (b) extending the

coverage in terms of number of commodities

and number of price quotations, (c) the

procedure adopted for selection of items, and

(d) the determination of the weighting

diagram.

1

Almost during the same period, the base years of

National Accounts Statistics (NAS) series have also

undergone change from 1948-49 to 1960-61 in August

1967, from 1960-61 to 1970-71 in January 1978, from 1970-

71 to 1980-81 in February 1988, from 1980-81 to 1993-94

in February 1999, from 1993-94 to 1999-2000 in January

2006, and from 1999-00 to 2004-05 in January 2010. Each

revision of series of WPI and NAS incorporated

improvements in methodology, coverage and quality of

price statistics and national accounts.

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Monthly Bulletin

October 2010 2073

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Price Index Numbers

(Base: 2004-05=100)

Choice of base year

In determining the base year for any

index number, a set of well-known criteria

is followed. These include: (a) the base year

should be a normal year, i.e., a stable year

in respect of economic activities like

production, trade, etc.; (b) it should not

suffer from business cycles; (c) availability

of reliable price data for the selected year;

(c) the base year should be as recent a year

as possible so that by the time revised

series of items and their prices are

released, it should not have outlived its

utility; and (d) the base year for other

closely related economic indicators should

not be widely off the mark. Again, it is

acknowledged that it would be desirable to

choose a base year that is not out of date

or out of tune with the universe that it is

designed to present.

Ever since the revision of WPI to base

1993-94 in April 2000, base of a few other

macro indices were revised. The Consumer

Price Index of Industrial Workers (CPI-IW)

was revised to the base year 2001. The series

of National Accounts Statistics (NAS) was

revised with a base year of 1999-2000. The

series of IIP was being revised with reference

to the new base year 2000-01. The Sub-group

on organised manufacturing, after analysing

the Annual Survey of Industries (ASI) data,

recommended the year 2000-01 as the base

year. The Sub-group on Agriculture also

found that 2000-01 is a normal period for

agricultural items. So, initially 2000-01 was

selected as the new base for the WPI series.

But the test-run of the new WPI series with

base 2000-01 could not be undertaken in

view of the inadequate flow of price data

from the manufacturing units.

The ASI data is the primary source for the

selection of the product basket and

derivation of product level weights for the

manufacturing group of the WPI series. The

availability of the latest ASI data for the year

2004-05 was one of the major factors for

considering 2004-05 as the base year for the

new WPI series. The year 2004-05, being a

relatively recent year, the task of collection

of backlog price data from this year onwards

was expected to be more manageable.

Furthermore, it was a normal year, free from

any major economic upheaval. Also, it was

the year for NSSO quinquennial round on

consumption expenditure and

employment/unemployment which is likely

to form the base of various other statistical

series. Indeed, the base of NAS series is

already shifted to 2004-05 in January 2010.

Selection of Items/Varieties/

Markets

The new WPI series with base 2004-05

has 676 items in the commodity basket, out

of which 102 belong to ‘Primary Articles’

Group, 19 belong to ‘Fuel & Power’ Group

and remaining 555 items belong to

‘Manufactured Product’ group. On the other

hand, there were total 435 items in the

commodity basket of the WPI with base

1993-94, out of which, 98 were Primary

Articles, 19 were Fuel and Power items and

rest of the 318 items were Manufactured

Products.

The selection of items for the new series

was mostly based on the recommendations

of area specific Sub-Groups constituted by the

Working Group, which considered the

relative importance/share in total

transactions as the basis for selection of any

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Price Index Numbers

(Base: 2004-05=100)

RBI

Monthly Bulletin

October 20102074

item. For example, the selection of items in

the ‘Primary Articles’ Group (except the

minerals subgroup) was assigned to the Sub-

Group on Agricultural Items. The Analytical

Group was assigned the task of selection of

items in the ‘Fuel Group’ and ‘Minerals’ sub-

group of ‘Primary Articles’ group. The

selection of items in the organised and un-

organised manufactured sectors was assigned

to Sub-group on Manufactured Items and

Sub-group on Unorganised/Unregistered

Sector, respectively. The Sub-group on

Agricultural Commodities felt that there is

less scope of change in the composition of

the commodity basket in the agricultural

sector but suggested changing the number

of varieties of different commodities as well

as the relative importance of market centres.

The Analytical Sub-group also felt that there

was not much scope for change in the

product composition of the ‘Minerals’ sub-

group as well as the ‘Fuel and Power’ group.

The ‘Manufactured Products’ basket in the

1993-94 series included all products with

traded value of `120 crore and above. This

led to poor representation of some product

group. In order to remove the anomaly in the

selection method based on a uniform cut-off

criterion and make the method of selection

more representative, the Working Group

decided to adopt a method in which each

product group in the manufactured basket

gets represented by a number of items which

together cover at least 80 per cent of the

traded value at the group level. The National

Industrial Classification (NIC-98) in respect

of manufactured products has been retained

for the new series also.

In recent years, the contribution of

floriculture in the national income has

increased substantially. Therefore, it was

recommended by the Sub-group on

Agricultural Commodities to be includ in the

new series. Floriculture has been

incorporated in the ‘Non-Food Articles’ sub-

group of ‘Primary Articles’ group. Flowers

like rose, jasmine and marigold have been

included under floriculture.

In the 1981-82 series, crude petroleum

was included as an independent item in the

‘Minerals’ sub-group of the major group

‘Primary Articles’. However, it was dropped

from ‘Minerals’ sub-group in the series with

1993-94 base. The Analytical Sub-Group of

the Working Group for the new series

observed that the price of crude petroleum

could now be collected from the open market

which is interlinked with the international

market and is traded on a regular basis.

Further, the existing practice of imputing

crude oil weight to petroleum products leads

to an upward bias in ‘Fuel and Power’ group

index apart from the fact that the movement

of crude oil prices and the prices of

petroleum products may not be similar due

to ‘pass-on’ lag. Therefore, crude oil has been

included in the ‘Minerals’ sub-group of the

‘Primary Articles’ Group in new series.

Coverage of the Series

Initially, the Working Group

recommended the incorporation of 1,224

commodities in the new WPI series

(base=2004-05). However, because of

various practical problems like availability

of data, regular flow of price data, etc., the

final basket of the new WPI was trimmed

to 676 commodities, which itself is much

bigger than the old WPI basket of 435

commodities. Further, to get a better price

representation, the number of price

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Monthly Bulletin

October 2010 2075

ARTICLE


Price Index Numbers

(Base: 2004-05=100)

quotations has also increased significantly

to 5,482 from 1,918 price quotations of the

old WPI series. In the new WPI series, the

number of price quotations per

commodities is almost doubled to 8.1

quotations per commodity from 4.4

quotations per commodity of the old series.

A comparative statement of the number of

commodities/number of quotations at major

group and group level in the new as well as

the earlier series is presented in Table 1 and

graphically represented in Charts 1 to 4.

At the major group level, the number of

commodities in ‘Manufactured Products’

increased significantly to 555 in the new

WPI series from 318 commodities of the old

series. This increase has resulted from the

increase in commodities of all the 12 sub-

groups of ‘Manufactured Products’. As

expected, the number of commodities in

‘Primary Articles’ has increased marginally

Table 1: Number of Commodities and Price Quotations at Major Group/Group Level in

the Old and the New Series (2004-05=100)

Major Group/Group Number of Commodities Number of Price Quotations

1970-71 1981-82 1993-94 2004-05 1970-71 1981-82 1993-94 2004-05

All Commodities 360 447 435 676 1,295 2,371 1,918 5,482

I. Primary Articles 80 93 98 102 411 519 455 579

Food Articles 39 44 54 55 264 320 340 431

Non-Food Articles 26 28 25 29 115 132 96 108

Minerals 15 21 19 18 32 67 19 40

II. Fuel and Power 10 20 19 19 30 73 72 72

III. Manufactured Products 270 334 318 555 854 1,779 1,391 4,831

Food Products 37 35 41 57 117 231 168 406

Beverages, Tobacco and Tobacco Products 8 7 11 15 19 39 49 102

Textiles 12 27 29 55 99 120 100 457

Wood and Wood Products 4 2 2 10 13 14 9 64

Paper and Paper Products 4 11 11 18 16 74 67 138

Leather and Leather Products 4 3 1 13 18 26 9 91

Rubber and Plastic Products 7 13 15 45 42 73 55 351

Chemicals and Chemical Products 67 77 69 107 182 428 276 1,111

Non-Metallic Mineral Products 21 22 9 26 63 125 42 225

Basic Metals, Alloys and Metal Products 42 57 53 69 125 235 203 696

Machinery and Machine Tools 35 44 56 107 104 266 312 903

Transport Equipments and Parts 21 22 21 33 39 118 101 287

to 102 from 98 commodities of the old

series. However, the commodity basket of

‘Fuel & Power’ remained at the level of the

old WPI series. Further, in new WPI series,

the number of price quotations for ‘Primary

Articles’ and ‘Manufactured Products’ have

increased to 579 and 4,831, from 455 and

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Price Index Numbers

(Base: 2004-05=100)

RBI

Monthly Bulletin

October 20102076

1,391 of old series, respectively. However,

the number of price quotations for ‘Fuel &

Power’ remained same at 72 of old series.

In the new WPI basket, there are 259

commodities (91 commodities of ‘Primary

Articles’, 19 commodities of ‘Fuel & Power’

and remaining 149 commodities are from

‘Manufactured Products’) which are retained

from the old WPI basket. However, there are

417 commodities which are new/revised in

the new WPI commodity basket. At major

group level, ‘Primary Articles’ got 11 new/

revised commodities like lemon, rose,

jasmine, etc. As indicated earlier, crude

petroleum, which was dropped from the

1993-94 WPI commodity basket, is again

incorporated in the new WPI basket under

‘Minerals’. The commodity basket of ‘Fuel &

Power’ is kept the same as old WPI series.

Most significantly, however, as many as 406

new/revised commodities have been

included in the ‘Manufactured Products’, of

which 25 commodities (e.g., ice cream,

processed prawn, rice bran, palm oil, cashew

kernel, etc.) belongs to ‘Food Products’, six

commodities (e.g., IMFL-Blended, soft drink

concentrates, non-alcoholic beverages, etc.)

belongs to ‘Beverages, Tobacco & Tobacco

Products’, 38 commodities (e.g., cotton shirts,

cotton yarn–bleached/unbleached, terene

garments, etc.) belongs to ‘Textiles’, nine

commodities (e.g., sawn timber posts/

squares, plywood board, etc.) are from ‘Wood

& Wood Products’, nine commodities (e.g.,

corrugated sheet boxes, paper cartons/boxes,

etc.) are from ‘Paper & Paper Products’, 13

commodities (e.g., vegetable tanned leather,

leather shoe upper, footwear/safety boot,

etc.) are from ‘Leather & Leather Products’,

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Monthly Bulletin

October 2010 2077

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Price Index Numbers

(Base: 2004-05=100)

35 commodities ( e.g., polyester film, rubber

seat assembly, plastic films & sheets, scooter/

motor cycle tyre, tooth-brush, etc.) belongs

to ‘Rubber & Plastic Products’, 83

commodities (e.g., petrochemical building

blocks, polymers, di-ammonium phosphate,

thermocol, etc.) are from ‘Chemicals &

Chemical Products’, 23 commodities (e.g.,

bricks & tiles, stone, grey cement, etc.) are

from ‘Non-Metallic Minerals Products’, 49

commodities (e.g., sponge iron, pig iron,

pencil ingots, HRC, etc.) are from ‘Basic

Metals, Alloys & Metal Products’, 84

commodities (e.g., harvester, transformer,

lifts, refrigerators, watches, battery charger,

washing/laundry machines, video CD

players, computers, etc.) are from ‘Machinery

& Machine Tools’ and remaining 30

commodities (tractors, bus/mini bus/truck,

motor vehicles, etc.) are from ‘Transport,

Equipments & Parts’. Overall, commodity

groupings in the new series have been

extensively rationalised.

Weighting Diagram

The major challenge in deriving the

weighting diagram was the need to ensure

representation of the overall price

movements in the economy and including

these at disaggregated levels with the

available number of items and quotations.

The impending task, therefore, was to

secure a sample that represents the

underlying universe adequately. Besides,

these weights would carry over to the

middle of the next decade and hence a

‘futuristic’ outlook on the weighting

diagram was absolutely imperative. The

weighting diagram for the new WPI series

has been derived on the basis of Gross Value

of Output (GVO). The Working Group has

derived the weights at the Major Group level

on the basis of aggregate values of

transactions, which consist of: (a) value of

marketed surplus in the case of domestic

agricultural products and Gross Value of

Output in the case of domestic non-

agricultural products, and (b) value of net

imports, i.e., value of traded imports minus

value of direct exports. The output values

at current prices, wherever available at

appropriate disaggregation, have been

obtained from the NAS, 2007 published by

the Central Statistics Office (CSO), Ministry

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Price Index Numbers

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Monthly Bulletin

October 20102078

of Statistics & Programme Implementation.

The same have been reallocated and

aggregated to conform to the structure of

WPI basket.

A comparative statement of the

weighting diagrams of the new series and

the old series at major group levels is

presented in Table 2 and graphically

represented in Charts 5(a)-5(b). As expected,

there is a decline in the weight allotted to

the ‘Primary Articles’ but only by about 1.9

percentage points which was 10.3

percentage points in the 1993-94 base

compared to 1981-82 base. The fall is mainly

attributed to the fall in the weights of ‘Food

Articles’ and ‘Non-Food Articles’. Weight of

‘Fuel and Power’ has gone up marginally by

0.7 percentage points; ‘Mineral Oils’ group

recoded an increase of 2.4 percentage

points. Weight of ‘Manufactured Products’

has gone up by more than 1.2 percentage

points. Major upward revision took place

in ‘Basic Metals, Alloys and Metal Products’,

where the weight has increased by 2.4

percentage points. On the other hand,

weights of ‘Food Products’ and ‘Textiles’ are

revised downwards by 1.6 and 2.5

percentage points, respectively.

New Series and Old Series – A

Comparison

Movement of Y-o-Y Inflation based on

new series vis-à-vis the old series at major

group-level is presented at Chart 6. In

addition, annual inflation rates for the new

series and the old series, both on average

and point-to-point basis, are presented in

Table 3. It is evident that these two series

do not differ much, suggesting that the

Major Group/Group Weight Change

1993-94 2004-05over old

series

All Commodities 100.000 100.000 0.000

I Primary Articles 22.025 20.118 -1.907

i Food Articles 15.402 14.337 -1.065

ii Non-Food Articles 6.138 4.258 -1.880

iii Minerals 0.485 1.521 1.036

II Fuel and Power 14.226 14.910 0.684

i Coal 1.753 2.094 0.341

ii Mineral Oils 6.987 9.364 2.377

iii Electricity 5.484 3.452 -2.032

III Manufactured Products 63.749 64.972 1.223

i Food Products 11.538 9.974 -1.564

ii Beverages, Tobacco 1.339 1.762 0.423

iii Textiles 9.800 7.326 -2.474

iv Wood and Wood Products 0.173 0.587 0.414

v Paper and Paper Products 2.044 2.034 -0.010

vi Leather and Leather

Products 1.019 0.835 -0.184

vii Rubber and Plastic

Products 2.388 2.987 0.599

viii Chemicals and Chemical

Products 11.931 12.018 0.087

ix Non-Metallic Mineral

Products 2.516 2.556 0.040

x Basic Metals, Alloys and

Metal Products 8.342 10.748 2.406

xi Machinery and

Machine Tools 8.363 8.931 0.568

xii Transport Equipments

and Parts 4.295 5.213 0.918

Table 2: Comparative Statement of the

Weighting Diagram at Major Group/Sub-Group

Level of the Old Series (Base: 1993-94=100) and

the New Series (Base: 2004-05=100)

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October 2010 2079

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Price Index Numbers

(Base: 2004-05=100)

new series can be a representative of the

price variation captured in the old series

(Table 4). The compound growth rate for

2009-10 over 2005-06 for the major

commodity groups has been worked out to

assess the overall price rise as per the old

and new series (Table 5). In the ‘Minerals’

sub-group of ‘Primary Articles’, ‘Electricity’

sub-group of ‘Fuel & Power’ and ‘Food

products’, ‘Beverages, tobacco and tobacco

products’, ‘Textiles’, ‘Paper & paper

products’, ‘Rubber & rubber products’,

‘Chemical & chemical products’ and

‘Machinery and machine tools’ sub-groups

of ‘Manufactured Products’ have shown

decline in growth rate. All other subgroups

have shown increase in growth rate of

varying magnitude. However, at the overall

level, the comparison suggests that the new

series is able to comprehend the price

movements as observed in the old series

and price variations between the two series

are due to structural changes taking place

in the economy.

Analytical and Methodological

Changes

There are a number of agricultural

commodities, especially, some fruits and

vegetables, which are seasonal in their

availability and whose prices are quoted only

during a particular period of the year.

Traditionally, such seasonal items are

handled in the index in a special manner.

When a particular seasonal item disappears

from the market and its prices cease to get

quoted, the index for such an item ceases to

be compiled and its weight is distributed over

the remaining items within the concerned

sub-group on a pro-rata basis. This system

Year Average Basis Point-to-point Basis

1993-94 2004-05 1993-94 2004-05

series series series series

2005-06 4.42 4.35 3.91 3.94

2006-07 5.43 6.51 6.61 6.82

2007-08 4.66 4.82 7.48 7.72

2008-09 8.41 8.03 1.20 1.48

2009-10 3.85 3.57 11.04 10.23

2010-11* 7.34 6.92 4.06 3.31

* Calculated on the basis of available data up to August,

2010.

Table 3: Rate of Inflation based on the

Old Series (Base: 1993-94=100)

and the New Series (Base: 2004-05=100)

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Monthly Bulletin

October 20102080

has been in practice in all the previous series

and will be continued in the revised series

also, with a clear delineation of the specific

period during which the index of a particular

seasonal item will be compiled.

The WPI with base year 1993-94 had

included the PDS price quotations for wheat

and rice. The Working Group was of the

opinion that since they did not represent

the first point of sale, these may not be

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Monthly Bulletin

October 2010 2081

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Price Index Numbers

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Table 4: Comparative Statement of the Annual Indices based on

the Old Series (1993-94=100), Shifted to the base 2004-05=100 and the New Series (2004-05=100)

Major Group/ Group 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11*

93-94 04-05 93-94 04-05 93-94 04-05 93-94 04-05 93-94 04-05 93-94 04-05

series series series series series series series series series series series series

All Commodities 104.4 104.4 110.1 111.2 115.2 116.5 124.9 125.9 129.7 130.4 139.4 139.4

I. Primary Articles 102.9 104.3 110.9 114.3 119.4 123.9 131.4 137.5 145.9 154.9 162.4 174.8

i. Food Articles 104.8 105.4 113.0 115.5 119.2 123.6 128.7 134.8 147.7 155.4 159.5 174.0

ii. Non-food Articles 95.5 96.7 100.4 102.3 113.1 114.4 125.7 129.2 131.6 136.2 152.5 152.3

iii Minerals 126.5 115.2 162.1 136.6 183.6 152.8 247.6 186.5 238.5 202.9 323.0 244.9

II. Fuel & Power 109.5 113.6 115.6 120.9 116.7 121.0 125.4 135.0 122.4 132.1 134.5 144.6

i. Coal 103.7 117.6 103.7 117.7 106.5 121.7 113.5 151.3 117.8 156.5 127.9 163.0

ii. Mineral Oils 113.9 116.7 122.9 127.4 124.1 126.3 137.8 141.8 131.3 135.8 146.6 152.1

iii. Electricity 104.1 102.6 107.4 105.3 107.9 106.2 109.0 106.4 109.7 107.4 116.9 112.9

III Manufactured

Products 103.1 102.3 107.7 108.0 113.0 113.3 122.2 120.2 126.1 122.4 132.2 127.2

i. Food Product 101.1 101.2 104.4 106.5 108.8 110.3 119.7 119.9 139.7 136.1 140.0 137.6

ii. Beverages, etc. 104.9 104.7 112.6 110.0 124.1 117.2 136.0 128.3 143.0 136.2 150.2 143.7

iii. Textiles 95.5 98.9 97.5 100.8 96.5 101.5 102.3 103.2 108.7 106.7 120.9 115.2

iv. Wood & prod. 108.4 105.7 114.9 111.9 120.3 119.4 130.3 130.7 133.2 143.3 151.8 148.1

v. Paper & prod. 102.2 103.6 109.2 108.4 111.2 111.6 116.1 116.3 117.0 118.9 118.4 122.1

vi. Leather & prod 107.1 104.3 102.4 112.5 106.7 116.0 107.9 122.3 106.6 128.4 106.6 128.0

vii. Rubber & prod 103.4 101.9 110.2 107.6 118.1 112.2 123.6 117.3 126.5 118.2 134.4 123.1

viii. Chem. & prod 103.6 103.8 106.7 108.9 112.7 112.8 120.8 118.1 126.1 117.8 132.0 122.4

ix. Non-Metallic 107.8 103.4 121.6 115.4 132.4 128.3 137.3 131.7 140.4 140.9 139.7 144.4

x. Basic Metals, etc 107.4 101.4 114.8 110.3 122.7 122.4 140.4 137.0 126.8 125.6 140.6 134.5

xi. Machinery, etc 105.1 103.6 111.0 110.1 118.8 114.1 124.4 117.4 124.3 118.0 128.2 120.4

xii. Transport, etc. 103.7 102.7 105.3 105.0 108.1 107.6 113.8 113.3 113.9 116.8 116.7 120.2

*: Calculated on the basis of available data (up to August, 2010).

included. In view of this, the Working

Group decided to include the procurement

prices of paddy and wheat, which in a way

represent the first point of sale in the price

quotations for wheat and rice. Such

analytical change is likely to create sudden

spurt in wheat and rice price, especially

during the month of procurement like

October, when actual procurement by

government takes place.

There is no change in the method of

compilation of the index in the revised

series. It is calculated on the principle of

weighted arithmetic mean, according to the

Laspeyres’ formula, which has a fixed base-

year weighting diagram operative through

the entire life span of the series. Price

relatives are calculated as the percentage

ratios, which the current prices bear to

those prevailing in the base period, i.e., by

dividing the current price by the base

period price and multiplying the quotient

by 100. The commodity index is arrived at

as the simple arithmetic average of the

price relatives of all the varieties included

under that commodity. The indices for the

sub-groups/groups/major groups/all

commodities are, in turn, worked out as

the weighted arithmetic mean of the

indices of the items/sub-groups/groups/

major groups falling under their respective

heads.

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Price Index Numbers

(Base: 2004-05=100)

RBI

Monthly Bulletin

October 20102082

Table 5: Inflation Rate (Compound Growth Rate) Based on the Old and

New Series at Major Groups and Sub-Group Levels

Major Group/Group Weights WPI (base: 1993-94=100) WPI (base: 2004-05=100)

1993-94 2004-05 2005-06 2009-10 Compound 2005-06 2009-10 Compound

series series Growth Growth

Rate Rate

(in %) (in %)

All Commodities 100.00 100.00 195.56 242.94 5.57 104.38 130.39 5.72

I. Primary Articles 22.03 20.12 193.59 274.53 9.12 104.30 154.94 10.40

i. Food Articles 15.40 14.34 195.28 275.11 8.95 105.38 155.39 10.20

ii. Non-food Articles 6.14 4.26 179.14 246.75 8.33 96.68 136.21 8.95

iii. Minerals 0.48 1.52 322.77 608.41 17.17 115.15 202.92 15.22

II. Fuel & Power 14.23 14.91 306.83 343.09 2.83 113.58 132.10 3.85

i. Coal 1.75 2.09 231.60 263.10 3.24 117.60 156.45 7.40

ii. Mineral Oils 6.99 9.36 359.77 414.51 3.60 116.73 135.75 3.85

iii. Electricity 5.48 3.45 263.38 277.67 1.33 102.57 107.40 1.16

III. Manufactured

Products 63.75 64.97 171.43 209.63 5.16 102.28 122.40 4.59

i. Food Product 11.54 9.97 176.83 244.32 8.42 101.19 136.08 7.69

ii. Beverages, etc. 1.34 1.76 226.83 309.11 8.05 104.66 136.18 6.80

iii. Textiles 9.80 7.33 129.51 147.46 3.30 98.94 106.73 1.91

iv. Wood & prod. 0.17 0.59 194.57 239.05 5.28 105.74 143.28 7.89

v. Paper & prod. 2.04 2.03 178.46 204.36 3.45 103.63 118.86 3.49

vi. Leather & prod 1.02 0.84 166.77 165.87 -0.14 104.25 128.35 5.34

vii. Rubber & prod 2.39 2.99 139.13 170.18 5.17 101.91 118.19 3.78

viii. Chem. & prod 11.93 12.02 188.23 229.10 5.04 103.79 117.76 3.21

ix. Non-Metallic

Mineral prod. 2.52 2.56 169.98 221.45 6.84 103.41 140.85 8.03

x. Basic Metals, etc 8.34 10.75 218.37 257.73 4.23 101.44 125.63 5.49

xi. Machinery, etc 8.36 8.93 147.40 174.22 4.27 103.58 117.98 3.31

xii. Transport, etc. 4.29 5.21 159.88 175.73 2.39 102.69 116.82 3.27

Frequency and Release of the new

WPI Index

The Working Group had detailed

deliberations on the issue of switching over

to a monthly index in the new series, as is

the practice in other countries, especially

against the background that the existing

compilation of the index on a weekly basis

leaves little time and scope for monitoring

the flow of price data from the

manufactured units. The index was,

therefore, compiled on a low response rate

in respect of price quotations from the

manufactured units. It was generally agreed

that switching over to a monthly index

would improve the quality of the index,

since a longer period shall give scope to

improve response rate through better

scrutiny and follow-up. In fact, the National

Statistical Commission, which made a

review of the existing flow of data on a

weekly basis for compilation of WPI was of

the opinion that the response rate could be

substantially increased if the Index is

switched over from the existing weekly to

monthly frequency. However, finally a

hybrid (mix of both weekly and monthly)

frequency was chosen: for ‘Primary Articles’

and ‘Fuel and Power’, it is compiled on a

weekly basis, and for ‘Manufactured

Products’, the index is compiled on a

RBI

Monthly Bulletin

October 2010 2083

ARTICLE


Price Index Numbers

(Base: 2004-05=100)

monthly frequency. This shift in

compilation, though recommended by the

Working Group for 2004-05 revision, was

effected in the 1993-94 series itself since

October 24, 2009. Release calendar of the

new series of WPI is as follows: the monthly

release of the WPI would be on 14th of each

month (if 14th

happens to be a holiday, the

WPI would be released on the next working

day); weekly release of WPI for the primary

articles and the articles in the broad group

(fuel & power) would be released on

Thursday (if Thursday happens to be a

holiday, it would be released on next

working day) with a gap of two weeks.

Provisional vs. Final Index

The weekly/monthly index of wholesale

prices at the time of its initial compilation

and release is provisional in nature because

it does not take into account some of the

price quotations that are received belatedly.

In such cases, the prices of the missing

quotations are either repeated or estimated,

depending on the nature of the commodity.

The provisional index is made ‘final’ after a

period of eight weeks/two months by which

time almost all the required price quotations

are expected to have become available. There

has, of late, been a concern for widening of

difference between the provisional and final

index of the Wholesale Prices. Since the

provisional numbers are released first, the

final numbers do not get the kind of

attention the provisional numbers get.

Widening gap also creates credibility

concerns. As mentioned earlier, WPI is

released within two weeks of the reference

week. The weekly series, therefore, has very

little time and is more susceptible to revision.

Though the data for the weekly series,

comprising the ‘Primary Articles’ and the

commodities in the broad group of ‘Fuel &

Power’, are sourced from Government

Departments, the revision is often significant

and widespread. In ‘Manufactured Products’,

while the index is shifted from a weekly

release to monthly release, there has always

been a lag in response for some commodities.

It is difficult to point out a particular

commodity in this regard because these have

been shifting over time.

The average difference between

provisional and final index appears to have

increased in 2008-2010 and both the

‘Primary Articles’ and articles in

‘Manufactured Products’ have contributed

to this widening of the difference. However,

the contribution of primary sector has been

significantly higher than the manufacturing

sector. For ‘All Commodities’, it is observed

that during 2000-09, there have been weeks

where the final index has been lower than

the provisional index indicating that revised

final numbers are not necessarily higher at

all times.

Conclusion

At the aggregate level, the price trend

as well as inflation of new series is similar

to those of the old series. However, there

are a number of significant changes in the

new series in terms of weighting diagram,

coverage, and price collection mechanism.

There is a reduction in the weight of

‘Primary Articles’ by 1.9 percentage points.

On the other hand, weights of ‘Fuel and

Power’ and ‘Manufactured Products’ have

gone up by 0.7 percentage points and 1.2

percentage points, respectively. In terms of

coverage, the number of commodities in the

ARTICLE


Price Index Numbers

(Base: 2004-05=100)

RBI

Monthly Bulletin

October 20102084

new series has gone up significantly to 676,

as compared to 435 commodities of the

earlier series. Further, in order to ensure a

better representation of price, the number

of price quotations has also increased

significantly to 5,482 from 1,918 price

quotations of the old series.

During recent years, the structure of

Indian economy has been changing at a great

pace due to technological revolution,

globalisation and demographic factors.

Many dynamic sectors of the economy,

including manufacturing, financial services,

information technology, trade, transport and

communication have grown faster and are

influencing strongly their market size and,

hence, their traded value. Therefore, it is

imperative that the price series is revised

more frequently for adequately capturing the

current structure of the economy, which is

consistent with price trend and consumption

pattern. While ideally a frequent revision is

desirable, practice of quinquennial revision

is suggested internationally. In this context,

way forward, the latest WPI revision to the

base 2004-05=100 is a welcome

development and will be better

representative of overall inflation of the

economy.

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