Consumer Price Index

Why in news?

• Consumer inflation measured by Consumer Price Index (CPI) in the country was 6.26% in June, the second consecutive month when India’s CPI has stayed above the 6% mark, the upper limit of the Reserve Bank of India’s (RBI) tolerance band.

What is CPI?

• It is a comprehensive measure used for estimation of price changes in a basket of goods and services representative of consumption expenditure in an economy.
• The CPI measures changes only in one of the factors - prices.
• It is calculated on a monthly basis.
• Base year for CPI (Rural, Urban and Combined) is 2012.

About CPI Basket

• The basket of goods and services represents the level of living or the utility derived by the consumers at given levels of their income, prices and tastes.
• The number of items in CPI basket include 448 in rural and 460 in urban.
• Items can be classified in to six groups
  • Food and beverages
  • Miscellaneous (health, education etc.)
  • Fuel & Light
  • Clothing & Footwear 
  • Pan, Tobacco and Intoxicants
• Weightage to these groups will vary in CPI rural, CPI urban and CPI combined.
• For example: weightage of food and beverages in CPI rural, CPI urban and CPI combined are 54%, 36% and 45% respectively.

What is its significance?

• This index is an important economic indicator and is widely considered as a barometer of inflation, a tool for monitoring price stability and as a deflator in national accounts.
• Consumer price index is used as a measure of inflation in around 157 countries.
• The dearness allowance of Government employees and wage contracts between labour and employer is based on this index.

Types of CPI compiled in India

• Presently the consumer price indices compiled in India are:
  • Sector specific
    • CPI for Industrial workers - CPI(IW)
    • CPI for Agricultural Labourers - CPI(AL)
    • CPI for Rural Labourers- CPI(RL)
  • Not sector specific:
    • CPI for all India or CPI combined
    • CPI Rural
    • CPI Urban
• The CPI (IW), CPI (AL) and CPI (RL) are occupation specific and are compiled by Labour Bureau under Ministry of Labour and Employment.
• CPI -Urban, CPI-Rural and CPI-combined are compiled by Central Statistical Organization under Ministry of Statistics and Programme Implementation.
• As per the agreement on Monetary Policy Framework between the RBI and Government, RBI has started using CPI-combined as the sole inflation measure for the purpose of monetary policy.

PRELIMS QUESTION

Which of the following Consumer price indices in India are published by Labour Bureau:
1.CPI-Rural
2.CPI-Industrial worker
3.CPI for Rural Labourers- CPI(RL) 
Select the correct answer using the code given below:
(a)1 and 2 only
(b)1 and 3 only
(c)2 and 3 only
(d)1,2 and 3
 

Answer to prelims question