mrunal eco - wpi cpi

7/26/2019 Mrunal Eco - Wpi Cpi

1/14

rologue

Chapter 4: Prices and Monetary Management. Three subparts

Monetary management, measures of money supply, Urjit Patel

Indees! Theory: "PI, CPI, IIP, #er$ices inde and others

Indees! Current: #ur$ey obser$ations on "PI, CPI % IIP, &o' to combat inflation.

"ait('hat happened to remaining chapters) Ch. * to + published as articles.

Chapter + to - to / a$ailable aspo'erpointand$ideos. 0"ill release them as articles after prelims and its 1unofficial2

ans'er3ey.

[Act 1] WHO calculates W I, C I, II ?

"PI 5ffice of the 6conomic 7d$iser

In 8IPP 8epartment of Industrial Policy and Promotion

In Ministry of Commerce % Industry.

CPI Central #tatistics 5ffice 0C#5

Ministry of #tatistics and Programme Implementation 0M5#PI

IIP #ame as CPI

[Act 2] WHEN they publish W I, C I, II ?

"PI data publication

"ee3ly 6$ery Thursday: Primary 7rticles and 9uel roup

If Thursday is holiday then net 'or3ing day

Monthly +4th of 6$ery month: all commodities

9inal 7bo$e t'o are 1pro$isional2 because some prices are not a$ailable.

9inal list released t'o months 0;6I&T 'ee3s. "hen they get authentic price data for all

commodities.

If holiday, then "PI data released net 'or3ing day.

CPI and IIP: When published?

CPI Monthly basis: for urban, rural, all India.

7nnual: 'ith lag of one month.
http://mrunal.org/2014/02/economy-rbi-urjit-patel-committee-4-cpi-nominal-anchor-multiple-indicator-monetary-policy-framework-reforms-part-1-of-2.htmlhttps://files.secureserver.net/0fzRqIv71qNX5Qhttps://www.youtube.com/playlist?list=PLAMBum9_RkuMFQpVimkzFfgBav0VXH7xhhttps://www.youtube.com/playlist?list=PLAMBum9_RkuMFQpVimkzFfgBav0VXH7xhhttp://mrunal.org/2014/02/economy-rbi-urjit-patel-committee-4-cpi-nominal-anchor-multiple-indicator-monetary-policy-framework-reforms-part-1-of-2.htmlhttps://files.secureserver.net/0fzRqIv71qNX5Qhttps://www.youtube.com/playlist?list=PLAMBum9_RkuMFQpVimkzFfgBav0VXH7xh


2/14

#tate of the necessary data.

IIP monthly basis 'ith the time lag of si 'ee3s from the reference month.

7lthough IIP just a short term indicator. The actual result come along 'ith 7nnual #ur$ey of Industries

07#I.

[Act ] WHE!E "o they get "ata #or W I,

C I, II ?#o far 'e 3no', 'ho ma3es the inde, and 'hen they release it. ?ut "&6@6 do they get the statistical inputs)

W I $ata Collectio%

Primary articles @especti$e ministries, dept, P#U, #tate o$ernments

9uel and po'er #ame as abo$e

Manufactured products Aeading manufacturing units

total B/B items

Problems in Data collection

+. #ince the collection of prices is on $oluntary basis, the flo' of price data, especially from manufacturing units, becomes

irregular leading to problems in compilation of "holesale price inde.

. 6conomic 7d$iser has created a 'ebportal, so factory o'ners can directly supply data. ?ut momentum not pic3ed up

yet. #eems they!re too busy changing profile pics on faceboo3.

. Therefore, 6conomic 7d$isors has made arrangement 'ith D##5 to collect price data from the manufacturing units, until

'ebportal becomes popular.

C I $ata collectio%

Who gives data for Consumer price index (CPI)?

Urban areas D##5 officials sur$ey. 8ata entered into DIC 'eb portal.

@ural areas D##5 officials E Postal 5fficials 0if D##5 can!t reach. Dot all $illages sur$eyed, only ;+== $illages.

II $ata Collectio%

Who gives data for Index of Industrial production (IIP)?

IIP information Supplier Items

8IPP: 8ept of Industrial Policy % Promotion 4=

Indian ?ureau of Mines B+

Iron % #teel Foint Committee 4/

Chem. % Petrochemicals 8ept. 4/

Tetile Commissioner 44

Ganaspati 8irectorate ++

Fute Commissioner ++

Petroleum ministry ++

@ail'ay ?oard B


3/14

9ertiliHer 8epartment B

Coal Controller

8irectorate of #ugar +

#alt Commissioner +

Tea ?oard +

Coffee ?oard +

Central 6lectricity 7uthority 0po'er Min. +

Total items B*

[Act &] WHA' are the co(po%e%ts o# W I,

C I, II ?

)1* W I co(po%e%ts o# Wholesale price i%"e+

6conomic 7d$isor, Aespeyer!s formula,

?ase year ==4.

hree categories! in descending order of Weight

WPI components "eight

Manufactured ProductsInternal "eight:Chemical metal food B4.J/

Primary 7rticlesinternal "eight:9ood Donfood Mineral =.+

9uel % Po'erinternal "eight:Mineral oil 6lectricity Coal +4.J+

total 'eight +==

These three categories are further subdi$ided into picture 'orth +=== 'ords.


4/14

What is Hea"li%e i%#latio% W I?

Dumber 'e get from all components $iH. primary, fuel and mfg.

What is Core i%#latio% W I?


5/14

core means, 'e should ignore food and fuel part.

#o, core inflation K 5nly "PI of DonLfood manufacturing industries.

&eadline "PI 0primary E fuel E food mfg. industries

)2* C I co(po%e%ts o# Co%su(er rice

I%"e+

C#5 calculates using Aespeyer!s formula,

?ase year =+=

9i$e category of items. I!$e arranged them

in descending order of "6I&T

0Combined 7ll India

CPI components #ural $rban Combined

9ood, be$erages, tobacco J.+ /.+ 4J./+

Misc.&ealth edu etc. 4.J+ * B.+

&ousing D7 . J.//

9uel, light +=.4 *.4 J.4J

Clothing,bedding,foot'ear .B .J+ 4./

Total +== +== +==

%ind it: @ural

CPI doesn!t

consider

&ousinginflation.

Subcategories #an&ing: CPI (Combined)

@an3ing 'ithin that highest 'eightage gi$en to

food, be$., tobacco Cereal Mil3 Geggies (..#ugar 0lo'est

9uel and light no subgroup

clothing, bedding, foot'are 0ClothingLbedding 9oot'are

&ousing Do subgroup.

Misc. Transport Medcare &ousehold reNuisites(@ecreation 0lo'est


6/14

What is Hea"li%e C I i%#latio%?

The number you get from combined data of abo$e categories.

What is Core C I i%#latio%?

Core CPI K&eadline CPI MIDU# 0food and fuel components.

Co%su(er oo" rice I%"e+ -C I.

?y the same good fol3s 'ho calculate CPI 0KC#5L'alla

Using same Aaspeyre formula

Using same base year: =+=

If total 'eight of CPI K +==, then 9ood price inde K ;> of its 'eight

Components in descending order

Components #ural $rban Combined

Cereals and products B./+ *.+ 4.+B

Mil3 and products +B. +.J +*.+

Gegetables +.B4 +.J +./4

5ils and fats *.J* J.44 J.+

6gg, fish and meat B. /.* B.//

Pulses and products B. B.++ B.

#ugar etc. 4.B4 4.++ 4.4/

9ruits .B B.+4 4.4

Condiments and spices 4.+ ./J 4

Total +== +== +==

#o far 'e are done 'ith components of "PI, CPI and food inflation. Mo$ing on

)* II * /ector0ise Co(po%e%ts?


7/14

Weight: %fg '' %ining '' lectricit

sector "eight items itemgroups

Manufacturing /./ B= J/

Mining +4+./ B+ +

6lectricity +=.+B + +

total +=== B* JJ

Mind it: Total 'eight is +===. #o, if you 'ant percentage 'eight, then shift decimal one point to left.

9or eample: manufacturing 'eight K /.>

II * oo"s0ise Co(po%e%ts?

IIP data released in t'o formats

+. #ector 'ise: Mining, mfg, electricity 0that 'e just sa' abo$e.

. oods category 'ise using the same components as abo$e, but data presented for goods category 'ise(.as sho'n belo'.

?asic oods 7ny bul3 ra' material


8/14

ConsumernonLdurable

can!t be used for long periods. 9ruit Pulp, edible oil, mil3 po'der, tea, Cigarettes, 7pparels, De'spapers,7ntibiotics etc.

*oods"ise "eight! In decreasing order:

IIP Weight

?asic oods 4B.*

Consumer nonLdurable +.4/

Intermediate oods +B.*B

Capital oods **.

Consumer durable *4.B

total 'eight +===

II 3 core i%"ustries

+. "ithin IIP, follo'ing * are core industries because they!$e impact on almost all other economic acti$ities:

. Coal, fertiliHer, electricity, crude oil, natural gas, refinery products, steel, and cement.

II $e#latio%

IIP is a Nuantitati$e inde, the productions of items are being epressed in physical terms.

?ut for some items, the information is recei$ed in 1Galue2 term rather than Nuantity or $olume.

#o, C#5 uses "PI as a deflator to con$ert that 1price2 into 1$olume2.

[Act &] WH4 !E5I/E W I, C I, II series?

Do' time for a 19A7#&?7CO2 in this mo$ie

index ne" series effective from

CPI =++, Fanuary

"PI =+=, #eptember

IIP =++, Fune

#o if these are the ne' series 'e tal3ed about then 'hat 'as the system before that)

!e6isio% o# Wholesale rice I%"e+ -W I.

The "PI series has to be re$ised often, because of t'o reasons:

+,: base ear

Inflation is a 1relati$e2 concept. "hen 'e say there is inflation it means things used to be cheaper at some pre$ious year.

#o, to calculate "PI, 'e need a base year. ?ase year should be re$ised once in a 'hile.

+-: product mix

"PI calculates inflation using Aaspeyres formula for 'eighted arithmetic mean.

?ut this formula fails to capture the dynamic changes in product mi and structure of the economy o$er time.

9or eample, + years ago, price of GC@ and magnetic tape cassettes 'ould ha$e mattered. ?ut no one uses them anymore.

#ame 'ay, + years ago, people did not buy that much moisturiHer creams and perfumes. &ence 'e!$e to 3eep changing the components.

.ased /bhi0it Sen Committee

.12# /1# Sen Committee! WPI reform


9/14

De' system #tarted from =+=, #ep

?ase year +JJ ==4

4 items B/B

Increased no. of price Nuotations

+. If factory directly eports, then don!t count that $alue in "PI. If factory directly imports an item, don!t count it in "PI.

7dded ne' items.

W I* Ne0 ite(s a""e"*

Aist not ehausti$e

Primary articles

Aemon, aur #eed, @ose, Fasmine, Marigold

Crude petroleum, Copper 5re, Qinc Concentrate

Manufactured items

Computer #tationery, UP#, #MP#, GC8 player

8ish 7ntenna, 9ibre 5ptic Cable

Perfume, #cent Cream, MoisturiHer, ?ody Po'der

Aeather lo$es, jac3ets, garments, bags

9ootball, Toothbrush

/au(itra Chau"huri Co((ittee o% W I

Current WPI Saumitra recommends

B/B items ;+== items.

++ $egetables +/

6pected to be operational from net year

Collect prices from more centres, to get better estimate.

@educe 'eight of primary food items. Increase 'eight of mfg. items

?ase year ==4 ==J, 7nd then to =++

6nough of "PI, mo$ing on

!e6isio% o# Co%su(er price i%"e+ series -C I.

P#23% .efore S23$I24 /fter

#tarted from =++, Fanuary

base year =+=

#pecific groups only.0?aseyear inbrac3et

Industrial 'or3ers 0==+

agricultural laborers

0+J*B

rural laborers 0+J*B

ProblemK doesn!t gi$e1'hole2 picture

+. @ural. Urban. combined 0E state


10/14

D##5!s =++ sur$ey.

%ind it: this doesn!t mean they no longer calculate CPI for industrial 'or3ers- 7gro % rural laborers. They still do

it.

!e6isio% o# I%"ustrial I%"e+ pro"uctio% -II .

6ach IIP item should ha$e certain minimum contribution to national production.

9or eample GC@ industry!s contribution in Today!s economy K =>

Therefore, need to update list 'ith based on technological changes, economic reforms and consumption patterns of the

people.

IIP .efore IIP /fter

C.P. Chandrase3har Committee

?ase year: +JJ ==4

7dded ne' items: 7pparels, ems and Fe'ellery, De'spapers, pasteurised Mil3, "riting % PrintingPaper, 7yur$edic Medicaments, "oollen Carpets, "ood 9urniture, Terry To'el, Coir Mats % Mattings,Polythene ?ags, Instant 9ood Mies, 9ruit Pulp etc.

Informationsource agencies:+

+B.

M#M6 dropped as a source agency.

Chemical and 9ertiliHer 8epartment added

#o E minus + K + increase

DICL+J*/ Items used from Dational Industrial Classification 0DICL==4

Increased 'eight gi$en to mining and electricity

8ecreased the 'eight gi$en to manufacturing

7s3ed M#M6 ministry to de$elop a separate inde for M#M6 sector

Co(pariso%* W I, C I, II

What did "e learn so far?

5$SI24 WPI CPI IIP

&5") Aespeyre!s formula same same

"&5) 6conomic ad$isor C#5 C#5

"&6D) 'ee3ly % monthly monthly monthly

"&6@6 they get data) ministries, dept., industries D##5 and Postal 'or3ers ministries, dept, bodies

Components : M9 Primary 9uel categories : M9 Mining electricity

types only one "PI @ural, urban, combined #ector 'ise and goods Usage 'ise.

items B/B B*

base year ==4 =+= ==4

C5@6 nonLfood manufacturing headline 0foodEfuel * industries

[Act 7] WH4 W I, C I, II i(porta%t?

Res, 'hy bother calculating "PI, CPI and IIP in the first placeS)

Why is W I i(porta%t?

Monitors the dynamic mo$ement of prices.


11/14

"ho "hy they use "PI)

o$ernment To design trade, fiscal and other economic policies

@?I To design monetary policy, under Multiple indicator method: @?I used "PI. 0?ut @ajan started using CPIfor this purpose, since 7pril =+4, on Urjit patel recommendation.

?usinessmen In the business contractL to calculate price escalation clauses in the supply of ra' materials, machineryand construction 'or3.

Why C I i(porta%t?

Measures the price of goods that households consume.

o$ernment Monitoring price stability.

Calculating 8earness 7llo'ance

Using as 1869A7T5@2 in national accounting

@?I To design monetary policy from 7pril =+4 on'ards, based on Urjit Patel recommendation.

?usinessmen Calculating 8earness 7llo'ance

Why II i(porta%t?

+. The IIP measures $olume changes in the production of an economy

. Pro$ides a measurement that is freeof influences of price changes

. 8ata used in o$ernment policy planning purposes, Industrial 7ssociations, @esearch Institutes and 7cademicians.

[Act 8] Other i%"e+es

/er6ice per#or(a%ce i%"ices -/ I.

Inde 8oes it co$er ser$ice sector inflation)

"PI Dope

CPI Partially e.g. education, healthcare

IIP It doesn!t capture 1inflation2. It captures increase < decrease in 1production2.

?ut here too, #er$ice sector production not counted.

7ny'ays, 6conomic 7d$isor started ser$ices price indices 0#PI. 0recall he also does the "PI.

5n eperimental basis.

To capture inflation in follo'ing ser$ice sectors:

@ail'ays#PIs

freight and passenger ser$ices

?an3ing#PIs

ser$ices for 'hich ban3s charge fees, commissions, bro3erage, etc.

@?I gets them data from + ban3s 0+ sar3aari, 4 pri$ate, foreign, + cooperati$e and + @@?.

Postal#PIs

only 8epartment of Posts.


12/14

&ardly tells anything, because it ID5@6# follo'ing:

Pri$ate courier companies

postal ser$ice to armed forces 0for national security issue

money transfer $ia "estern union, IP5, money order- re$enue stamps.

Telecom#PIs

only for cellular ser$ices on the basis T@7I report. uarterly basis.

7ll of them use same Aaspeyre!s formula.

9altic $ry i%"e+

Aondon based ?altic 6change, releases this inde number on daily basis.

Measures cost to transport ra' materials by sea.

ro"ucer rice I%"e+ - I.

measures price change from the perspecti$e of the seller.

i.e. a$erage change in selling prices recei$ed by domestic producers for their output.

Co$ers both goods E ser$ices. 0"PI only co$ers goods

#ellers! and purchasers! prices differ due to go$ernment subsidies, taes and distribution costs. Therefore, better to use PPI.

?coH CPI doesn!t co$er this.

Majority of the 56C8 countries measure inflation based on Producer Price Inde 0PPI

"PI has been replaced in most countries by Producer Price Inde 0PPI due to the broader co$erage pro$ided by the PPI in

terms of products and industries

PPI has more concordance 'ith system the national account. 0compared to "PI

Therefore, 5ffice of the 6conomic 7d$iser 0567 has ta3en up the initiati$e for constructing a Producer Price Inde 0PPI

for India.

#ome notable countries

Ireland uses ?5T& "PI and PPI

2nl WPI 2nl PPI

Fapan, 7ustralia, reece, Dor'ay and Tur3ey Canada, U#7 , 7ussies, #.Oorea, UO, #pain, Italy

/o(e (ore i%"e+es

@?I Inflation epectation sur$ey of households.

9or three months and + year ahead periods.

5?ICU# 5rder ?oo3s, In$entories and Capacity UtiliHation #ur$ey 05?ICU#

?y @eser$e ?an3 of India 0@?I

To assess consumption and in$estment demand

#ur$eying ;== companies in manufacturing sector

Timeframe: Nuarterly

If .altic number meaning

Increases More ra' material shipped. "orld economy gro'ing

"as highest in May ==* 0;++,*==.

8ecreases @e$erse impact on economy.

7fter ==*, 7fter that continuous decline due to subprime, and euroHone crisis.

Ao'est May =+4 0J*


13/14

7#I 7nnual sur$ey of Industries

?y D##5 under #tatistical ministry

To sur$ey manufacturing sector!s gro'th and structure

#ur$eying e$ery mfg. unit employing += 'or3ers or more.

7nnually

?C India Manufacturing Purchase Managers! Indices 0PMI.

Monthly basis

D66@@66@ 'ill see them 'hen I publish articles for chB and *(.in the meantime you may refer tothepo'erpointor lecture$ideos..

[Act :] ;aspeyre, compared to the prices in base year ==4.

In =+, If I get the number +*=K*=> inflation than base year 0==4

?ut compared to =+4, the =+!s year on inflation 'ould be 0+*=L+/=.

#tatistically 'e can epress 'ith this formula:
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14/14

Dote:

some

boo3s

use

P=

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