ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

How Should Inflation Be Measured in India?

Though monetary policy in India is not explicitly charged with delivering low and stable inflation, it still needs to choose a measure of inflation as a reference. Questions of timeliness, weights in the price index, accuracy of food price measurement, and inclusion of the prices of services are relevant to the choice of measure. This paper looks at detailed price data, expenditure patterns of households and the composition of different price indices available in India, and discusses policies on inflation measurement in other countries. Under present conditions of measurement, the consumer price index for industrial workers, despite some serious deficiencies, is preferable to both the wholesale price index and the GDP deflator as the headline inflation rate. Thus, macroeconomic analysis and policy thinking need to move away from a focus on the WPI to the CPI-IW.

SPECIAL ARTICLE

How Should Inflation Be Measured in India?

Ila Patnaik, Ajay Shah, Giovanni Veronese

Though monetary policy in India is not explicitly charged with delivering low and stable inflation, it still needs to choose a measure of inflation as a reference. Questions of timeliness, weights in the price index, accuracy of food price measurement, and inclusion of the prices of services are relevant to the choice of measure. This paper looks at detailed price data, expenditure patterns of households and the composition of different price indices available in India, and discusses policies on inflation measurement in other countries. Under present conditions of measurement, the consumer price index for industrial workers, despite some serious deficiencies, is preferable to both the wholesale price index and the GDP deflator as the headline inflation rate. Thus, macroeconomic analysis and policy thinking need to move away from a focus on the WPI to the CPI-IW.

Dear reader,

To continue reading, become a subscriber.

Explore our attractive subscription offers.

Click here

Comments

(-) Hide

EPW looks forward to your comments. Please note that comments are moderated as per our comments policy. They may take some time to appear. A comment, if suitable, may be selected for publication in the Letters pages of EPW.

Back to Top