India to unveil inflation index to correct price 'disconnect'
Tuesday, 21 July 2009
NEW DELHI, July 20 (Bloomberg): India will adopt a new consumer price index next year after policy makers said the current main inflation gauge of wholesale prices doesn't reflect the true costs borne by people.
India's statistics department releases four consumer price indices for different groups such as farm and industrial workers. The central bank and the finance ministry use the wholesale price index as the benchmark as the other inflation measures don't capture the aggregate price picture.
"For macro purposes, you need a unified consumer price index," Pronab Sen, the top bureaucrat in India's statistics ministry said in an interview on July 17. "We are hopeful that by the end of next year we should be able to come up with one."
Gains in the weekly wholesale prices hovered near 1 per cent in May while increases in the four consumer indices, announced monthly, ranged between 7 per cent and 10 per cent. Governor Duvvuri Subbarao said the divergence in various price measures "complicates" monetary policy formulation while Finance Secretary Ashok Chawla said the "disconnect" must be rectified.
"The issue is causing some problems at this point in time," said Chawla, the top bureaucrat in India's finance ministry. "Policy makers have to tread with a certain amount of caution."
Sen said the only "compelling" logic for a unified consumer price index is for monetary policy purposes, as there is nothing "intrinsically wrong" with the wholesale price gauge and the four consumer price measures.
The wholesale price index provides a snapshot of producer prices while the consumer price gauges show the final cost paid by consumers.
"So you can have a situation where wholesale prices are going down and consumer prices are rising, and what it's basically saying is that the cost of production is decreasing and that's legitimate information," Sen said.
"Similarly, regarding consumer prices, whose cost of consumption am I interested in?" Sen asked. "As far as the government is concerned, you would want to measure the cost of living of the most disadvantaged part of society." And the existing consumer price indices do exactly that, Sen said.
The consumer price index for agriculture labor measures the poorest segment of the rural population while the consumer price index for industrial workers measure the weakest part of India's urban centers, Sen said.
He said the statistics department will continue to release the existing consumer indices and the wholesale index even after the new, unified consumer index is unveiled next year.
India's statistics department releases four consumer price indices for different groups such as farm and industrial workers. The central bank and the finance ministry use the wholesale price index as the benchmark as the other inflation measures don't capture the aggregate price picture.
"For macro purposes, you need a unified consumer price index," Pronab Sen, the top bureaucrat in India's statistics ministry said in an interview on July 17. "We are hopeful that by the end of next year we should be able to come up with one."
Gains in the weekly wholesale prices hovered near 1 per cent in May while increases in the four consumer indices, announced monthly, ranged between 7 per cent and 10 per cent. Governor Duvvuri Subbarao said the divergence in various price measures "complicates" monetary policy formulation while Finance Secretary Ashok Chawla said the "disconnect" must be rectified.
"The issue is causing some problems at this point in time," said Chawla, the top bureaucrat in India's finance ministry. "Policy makers have to tread with a certain amount of caution."
Sen said the only "compelling" logic for a unified consumer price index is for monetary policy purposes, as there is nothing "intrinsically wrong" with the wholesale price gauge and the four consumer price measures.
The wholesale price index provides a snapshot of producer prices while the consumer price gauges show the final cost paid by consumers.
"So you can have a situation where wholesale prices are going down and consumer prices are rising, and what it's basically saying is that the cost of production is decreasing and that's legitimate information," Sen said.
"Similarly, regarding consumer prices, whose cost of consumption am I interested in?" Sen asked. "As far as the government is concerned, you would want to measure the cost of living of the most disadvantaged part of society." And the existing consumer price indices do exactly that, Sen said.
The consumer price index for agriculture labor measures the poorest segment of the rural population while the consumer price index for industrial workers measure the weakest part of India's urban centers, Sen said.
He said the statistics department will continue to release the existing consumer indices and the wholesale index even after the new, unified consumer index is unveiled next year.