Amid a debate over the consumer price index (CPI) becoming a target on inflation for the Reserve Bank of India (RBI)’s monetary policy, the incumbent inflation barometer — the wholesale price index (WPI) — would see a change in its structure.
As if to make WPI relevant to the changed scenario, items which constitute core inflation would get more weight in WPI.
Core inflation (relating to only non-food manufactured items) is generally expected to be a key factor for RBI to determine its monetary stance.
The weight of manufactured products in WPI, which already is 64 per cent in the index, could rise by almost two percentage points despite reduction in the weight of processed food items in the new series.
This would come at the expense of unprocessed food, as well as fuel and power. The new series will have a base year of 2009-10 against 2004-05 in the present version.
According to the final recommendations of a committee constituted under the chairmanship of Planning Commission member Saumitra Chaudhuri, the weight of primary (unprocessed) food items will go down by 0.5-1.0 percentage points in the new series compared to the current one. That of fuel and power would also see a decline.
At present, primary articles, which include raw food items, have a weight of 20.12 per cent in the WPI, while fuel and power have a weight of 14.91 per cent. Manufactured products have the largest 64.97 per cent weight.
Within manufactured products, food items have a weight of 9.9 per cent, which would further go down to nine per cent.
“Weight of manufactured products will go up by two percentage points in the new WPI, which will be adjusted in food, power and fuel,” Chaudhuri told Business Standard.
Fuel and power have more weight in the 2004-05 base than required, some members of the committee felt.
Chaudhuri said the re-calibration was done as the base will be shifted to 2009-10 and also on the basis of fresh inputs from national accounts statistics.
The new series will have sufficient room to migrate to a newer base of 2011-12 as and when fresh inputs are available, but the chances of a big change in weight is nominal. “These weights will be based on the 2009-10 base and can change when the 2011-12 base is used,” said Chaudhuri.
More weight to non-food manufactured products will make WPI focused more on core inflation.
“I think core WPI should remain in focus, as it includes manufactured products. Core WPI inflation along with overall CPI would remain important,” said Soumya Kanti Ghosh, chief economic advisor of State Bank of India.
However, national statistical commission chairman Pronab Sen said the WPI would always remain relevant, since national accounts cannot be measured on constant prices without WPI.
A panel headed by RBI deputy governor Urjit Patel had recommended making CPI as the main reference point to determining RBI’s monetary stance. This has triggered a debate over relevance of WPI.