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Consumer Price Index Number is an index number of the cost met by a specified class of consumers in buying a ‘Basket of goods and services’.

Here, Basket of goods and services’ means goods and services needed in day to day life of the specified class of consumers. The pattern of consumption of goods is different in different classes. And so, the general index numbers fail to indicate the changes in costs with regard to various classes of consumers.

Here, ‘Class of consumers’ means group of consumers having

almost identical pattern of consumption. Generally, the classes are those of workers of a factory, people belonging to a particular community, government employees, etc.

CONSUMER PRICE INDEX NUMBER

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CONSUMER PRICE INDEX NUMBERS

Meaning The consumer price index numbers, also known as cost of living index numbers, are generally intended to represent the average change over time in the prices paid by the ultimate consumer of a specified basket of goods and services.

Need The need for constructing consumer price indices arises because the general index numbers fail to give an exact idea of the effect of the change in the general price level on the cost of different classes of people in different manners.

At present, the three terms, viz. cost of living index, consumer price index and retail price index are used in different countries with practically no difference in their connotation.

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1. Consumer Price Index Numbers indicate the changes in the consumer prices. And so, they help governments in formulating policies regarding control of price, taxation, imports and exports of commodities, etc.

2. They are used in granting allowances and other facilities to employees.

3. They are used for the evaluation of purchasing power of money. They are used for deflating money.

4. They are used for comparing changes in the coat of living of different classes of people.

USES OF CONSUMER PRICE INDEX NUMBERS

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There are two methods of computation of consumer price index number. They are –

a. Aggregative expenditure method. b. Family budget method.

Aggregative expenditure method Here the quantities used in the base year are taken as weights.

Thus, the consumer price index number by this method is: P01 = (Total expenditure in the current year / Total expenditure in the base year) x 100

Family budget method: Consumer price index number by this method is the weighted

arithmetic mean of the price relatives. The weights assigned are the expenditure in a normal period. Thus, the consumer price index number is: P01 = (ΣWI / ΣW) where W = P0Q0 and I = (P1/P0)

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The Wholesale Price Index (WPI) is the price of a representative basket of wholesale goods. Some countries (like India and The Philippines) use WPI changes as a central measure of inflation. However, United States now report a producer price index instead.

The Wholesale Price Index or WPI is "the price of a representative basket of wholesale goods. Some countries use the changes in this index to measure inflation in their economies, in particular India –

The Indian WPI figure was earlier released weekly on every Thursday and influenced stock and fixed price markets. The Indian WPI is now updated on a monthly basis. The Wholesale Price Index focuses on the price of goods traded between corporations, rather than goods bought by consumers, which is measured by the Consumer Price Index. The purpose of the WPI is to monitor price movements that reflect supply and demand in industry, manufacturing and construction. This helps in analyzing both macroeconomic and microeconomic conditions.

Wholesale Price Index

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The wholesale price index (WPI) is based on the wholesale price of a few relevant commodities of over 240 commodities available. The commodities chosen for the calculation are based on their importance in the region and the point of time the WPI is employed.

For example in India about 435 items were used for calculating the WPI in base year 1993-94 while the advanced base year 2004-05 uses 676 items. The indicator tracks the price movement of each commodity individually. Based on this individual movement, the WPI is determined through the averaging principle.

Calculation

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The following methods are used to compute the WPI:

Laspeyres Formula  It is the weighted arithmetic mean based on the

fixed value-based weights for the base period.

Ten-Day Price IndexUnder this method, “sample prices” with high intra-

month fluctuations are selected and surveyed every ten days through phone. Utilizing the data retrieved by this procedure and with the assumption that other non-surveyed “sample prices” remain unchanged, a “ten-day price index” is compiled and released.

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The Industrial Production Index (IPI) is an economic indicator published by the Federal Reserve Board of the United States that measures the real production output of manufacturing, mining, and utilities. Production indexes are computed mainly as fisher indexes with the weights based on annual estimates of value added.

Since Fisher indexes only preserve growth information, the value in the base year (currently 2007) is arbitrarily set at 100. This index, along with other industrial indexes and construction, accounts for the bulk of the variation in national output over the duration of the business cycle.

Industrial production index

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Production data is often received directly from the Bureau of Labor Statistics and trade associations, both on physical output and inputs used in the production process. Each individual index is calculated using the Fischer index formula.

Investors can use the IPI of various industries to examine the growth in the respective industry. If the IPI is growing month-over-month for a particular industry, this is a sign that the companies in the industry are performing well.

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The all India IIP is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period with respect to that in a chosen base period. It is compiled and published monthly by the Central Statistics Office (CSO) with the time lag of six weeks from the reference month.