mrunal eco - wpi cpi
TRANSCRIPT
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rologue
Chapter 4: Prices and Monetary Management. Three subparts
Monetary management, measures of money supply, Urjit Patel
Indees! Theory: "PI, CPI, IIP, #er$ices inde and others
Indees! Current: #ur$ey obser$ations on "PI, CPI % IIP, &o' to combat inflation.
"ait('hat happened to remaining chapters) Ch. * to + published as articles.
Chapter + to - to / a$ailable aspo'erpointand$ideos. 0"ill release them as articles after prelims and its 1unofficial2
ans'er3ey.
[Act 1] WHO calculates W I, C I, II ?
"PI 5ffice of the 6conomic 7d$iser
In 8IPP 8epartment of Industrial Policy and Promotion
In Ministry of Commerce % Industry.
CPI Central #tatistics 5ffice 0C#5
Ministry of #tatistics and Programme Implementation 0M5#PI
IIP #ame as CPI
[Act 2] WHEN they publish W I, C I, II ?
"PI data publication
"ee3ly 6$ery Thursday: Primary 7rticles and 9uel roup
If Thursday is holiday then net 'or3ing day
Monthly +4th of 6$ery month: all commodities
9inal 7bo$e t'o are 1pro$isional2 because some prices are not a$ailable.
9inal list released t'o months 0;6I&T 'ee3s. "hen they get authentic price data for all
commodities.
If holiday, then "PI data released net 'or3ing day.
CPI and IIP: When published?
CPI Monthly basis: for urban, rural, all India.
7nnual: 'ith lag of one month.
http://mrunal.org/2014/02/economy-rbi-urjit-patel-committee-4-cpi-nominal-anchor-multiple-indicator-monetary-policy-framework-reforms-part-1-of-2.htmlhttps://files.secureserver.net/0fzRqIv71qNX5Qhttps://www.youtube.com/playlist?list=PLAMBum9_RkuMFQpVimkzFfgBav0VXH7xhhttps://www.youtube.com/playlist?list=PLAMBum9_RkuMFQpVimkzFfgBav0VXH7xhhttp://mrunal.org/2014/02/economy-rbi-urjit-patel-committee-4-cpi-nominal-anchor-multiple-indicator-monetary-policy-framework-reforms-part-1-of-2.htmlhttps://files.secureserver.net/0fzRqIv71qNX5Qhttps://www.youtube.com/playlist?list=PLAMBum9_RkuMFQpVimkzFfgBav0VXH7xh -
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#tate of the necessary data.
IIP monthly basis 'ith the time lag of si 'ee3s from the reference month.
7lthough IIP just a short term indicator. The actual result come along 'ith 7nnual #ur$ey of Industries
07#I.
[Act ] WHE!E "o they get "ata #or W I,
C I, II ?#o far 'e 3no', 'ho ma3es the inde, and 'hen they release it. ?ut "&6@6 do they get the statistical inputs)
W I $ata Collectio%
Primary articles @especti$e ministries, dept, P#U, #tate o$ernments
9uel and po'er #ame as abo$e
Manufactured products Aeading manufacturing units
total B/B items
Problems in Data collection
+. #ince the collection of prices is on $oluntary basis, the flo' of price data, especially from manufacturing units, becomes
irregular leading to problems in compilation of "holesale price inde.
. 6conomic 7d$iser has created a 'ebportal, so factory o'ners can directly supply data. ?ut momentum not pic3ed up
yet. #eems they!re too busy changing profile pics on faceboo3.
. Therefore, 6conomic 7d$isors has made arrangement 'ith D##5 to collect price data from the manufacturing units, until
'ebportal becomes popular.
C I $ata collectio%
Who gives data for Consumer price index (CPI)?
Urban areas D##5 officials sur$ey. 8ata entered into DIC 'eb portal.
@ural areas D##5 officials E Postal 5fficials 0if D##5 can!t reach. Dot all $illages sur$eyed, only ;+== $illages.
II $ata Collectio%
Who gives data for Index of Industrial production (IIP)?
IIP information Supplier Items
8IPP: 8ept of Industrial Policy % Promotion 4=
Indian ?ureau of Mines B+
Iron % #teel Foint Committee 4/
Chem. % Petrochemicals 8ept. 4/
Tetile Commissioner 44
Ganaspati 8irectorate ++
Fute Commissioner ++
Petroleum ministry ++
@ail'ay ?oard B
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9ertiliHer 8epartment B
Coal Controller
8irectorate of #ugar +
#alt Commissioner +
Tea ?oard +
Coffee ?oard +
Central 6lectricity 7uthority 0po'er Min. +
Total items B*
[Act &] WHA' are the co(po%e%ts o# W I,
C I, II ?
)1* W I co(po%e%ts o# Wholesale price i%"e+
6conomic 7d$isor, Aespeyer!s formula,
?ase year ==4.
hree categories! in descending order of Weight
WPI components "eight
Manufactured ProductsInternal "eight:Chemical metal food B4.J/
Primary 7rticlesinternal "eight:9ood Donfood Mineral =.+
9uel % Po'erinternal "eight:Mineral oil 6lectricity Coal +4.J+
total 'eight +==
These three categories are further subdi$ided into picture 'orth +=== 'ords.
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What is Hea"li%e i%#latio% W I?
Dumber 'e get from all components $iH. primary, fuel and mfg.
What is Core i%#latio% W I?
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core means, 'e should ignore food and fuel part.
#o, core inflation K 5nly "PI of DonLfood manufacturing industries.
&eadline "PI 0primary E fuel E food mfg. industries
)2* C I co(po%e%ts o# Co%su(er rice
I%"e+
C#5 calculates using Aespeyer!s formula,
?ase year =+=
9i$e category of items. I!$e arranged them
in descending order of "6I&T
0Combined 7ll India
CPI components #ural $rban Combined
9ood, be$erages, tobacco J.+ /.+ 4J./+
Misc.&ealth edu etc. 4.J+ * B.+
&ousing D7 . J.//
9uel, light +=.4 *.4 J.4J
Clothing,bedding,foot'ear .B .J+ 4./
Total +== +== +==
%ind it: @ural
CPI doesn!t
consider
&ousinginflation.
Subcategories #an&ing: CPI (Combined)
@an3ing 'ithin that highest 'eightage gi$en to
food, be$., tobacco Cereal Mil3 Geggies (..#ugar 0lo'est
9uel and light no subgroup
clothing, bedding, foot'are 0ClothingLbedding 9oot'are
&ousing Do subgroup.
Misc. Transport Medcare &ousehold reNuisites(@ecreation 0lo'est
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What is Hea"li%e C I i%#latio%?
The number you get from combined data of abo$e categories.
What is Core C I i%#latio%?
Core CPI K&eadline CPI MIDU# 0food and fuel components.
Co%su(er oo" rice I%"e+ -C I.
?y the same good fol3s 'ho calculate CPI 0KC#5L'alla
Using same Aaspeyre formula
Using same base year: =+=
If total 'eight of CPI K +==, then 9ood price inde K ;> of its 'eight
Components in descending order
Components #ural $rban Combined
Cereals and products B./+ *.+ 4.+B
Mil3 and products +B. +.J +*.+
Gegetables +.B4 +.J +./4
5ils and fats *.J* J.44 J.+
6gg, fish and meat B. /.* B.//
Pulses and products B. B.++ B.
#ugar etc. 4.B4 4.++ 4.4/
9ruits .B B.+4 4.4
Condiments and spices 4.+ ./J 4
Total +== +== +==
#o far 'e are done 'ith components of "PI, CPI and food inflation. Mo$ing on
)* II * /ector0ise Co(po%e%ts?
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Weight: %fg '' %ining '' lectricit
sector "eight items itemgroups
Manufacturing /./ B= J/
Mining +4+./ B+ +
6lectricity +=.+B + +
total +=== B* JJ
Mind it: Total 'eight is +===. #o, if you 'ant percentage 'eight, then shift decimal one point to left.
9or eample: manufacturing 'eight K /.>
II * oo"s0ise Co(po%e%ts?
IIP data released in t'o formats
+. #ector 'ise: Mining, mfg, electricity 0that 'e just sa' abo$e.
. oods category 'ise using the same components as abo$e, but data presented for goods category 'ise(.as sho'n belo'.
?asic oods 7ny bul3 ra' material
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ConsumernonLdurable
can!t be used for long periods. 9ruit Pulp, edible oil, mil3 po'der, tea, Cigarettes, 7pparels, De'spapers,7ntibiotics etc.
*oods"ise "eight! In decreasing order:
IIP Weight
?asic oods 4B.*
Consumer nonLdurable +.4/
Intermediate oods +B.*B
Capital oods **.
Consumer durable *4.B
total 'eight +===
II 3 core i%"ustries
+. "ithin IIP, follo'ing * are core industries because they!$e impact on almost all other economic acti$ities:
. Coal, fertiliHer, electricity, crude oil, natural gas, refinery products, steel, and cement.
II $e#latio%
IIP is a Nuantitati$e inde, the productions of items are being epressed in physical terms.
?ut for some items, the information is recei$ed in 1Galue2 term rather than Nuantity or $olume.
#o, C#5 uses "PI as a deflator to con$ert that 1price2 into 1$olume2.
[Act &] WH4 !E5I/E W I, C I, II series?
Do' time for a 19A7#&?7CO2 in this mo$ie
index ne" series effective from
CPI =++, Fanuary
"PI =+=, #eptember
IIP =++, Fune
#o if these are the ne' series 'e tal3ed about then 'hat 'as the system before that)
!e6isio% o# Wholesale rice I%"e+ -W I.
The "PI series has to be re$ised often, because of t'o reasons:
+,: base ear
Inflation is a 1relati$e2 concept. "hen 'e say there is inflation it means things used to be cheaper at some pre$ious year.
#o, to calculate "PI, 'e need a base year. ?ase year should be re$ised once in a 'hile.
+-: product mix
"PI calculates inflation using Aaspeyres formula for 'eighted arithmetic mean.
?ut this formula fails to capture the dynamic changes in product mi and structure of the economy o$er time.
9or eample, + years ago, price of GC@ and magnetic tape cassettes 'ould ha$e mattered. ?ut no one uses them anymore.
#ame 'ay, + years ago, people did not buy that much moisturiHer creams and perfumes. &ence 'e!$e to 3eep changing the components.
.ased /bhi0it Sen Committee
.12# /1# Sen Committee! WPI reform
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De' system #tarted from =+=, #ep
?ase year +JJ ==4
4 items B/B
Increased no. of price Nuotations
+. If factory directly eports, then don!t count that $alue in "PI. If factory directly imports an item, don!t count it in "PI.
7dded ne' items.
W I* Ne0 ite(s a""e"*
Aist not ehausti$e
Primary articles
Aemon, aur #eed, @ose, Fasmine, Marigold
Crude petroleum, Copper 5re, Qinc Concentrate
Manufactured items
Computer #tationery, UP#, #MP#, GC8 player
8ish 7ntenna, 9ibre 5ptic Cable
Perfume, #cent Cream, MoisturiHer, ?ody Po'der
Aeather lo$es, jac3ets, garments, bags
9ootball, Toothbrush
/au(itra Chau"huri Co((ittee o% W I
Current WPI Saumitra recommends
B/B items ;+== items.
++ $egetables +/
6pected to be operational from net year
Collect prices from more centres, to get better estimate.
@educe 'eight of primary food items. Increase 'eight of mfg. items
?ase year ==4 ==J, 7nd then to =++
6nough of "PI, mo$ing on
!e6isio% o# Co%su(er price i%"e+ series -C I.
P#23% .efore S23$I24 /fter
#tarted from =++, Fanuary
base year =+=
#pecific groups only.0?aseyear inbrac3et
Industrial 'or3ers 0==+
agricultural laborers
0+J*B
rural laborers 0+J*B
ProblemK doesn!t gi$e1'hole2 picture
+. @ural. Urban. combined 0E state
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D##5!s =++ sur$ey.
%ind it: this doesn!t mean they no longer calculate CPI for industrial 'or3ers- 7gro % rural laborers. They still do
it.
!e6isio% o# I%"ustrial I%"e+ pro"uctio% -II .
6ach IIP item should ha$e certain minimum contribution to national production.
9or eample GC@ industry!s contribution in Today!s economy K =>
Therefore, need to update list 'ith based on technological changes, economic reforms and consumption patterns of the
people.
IIP .efore IIP /fter
C.P. Chandrase3har Committee
?ase year: +JJ ==4
7dded ne' items: 7pparels, ems and Fe'ellery, De'spapers, pasteurised Mil3, "riting % PrintingPaper, 7yur$edic Medicaments, "oollen Carpets, "ood 9urniture, Terry To'el, Coir Mats % Mattings,Polythene ?ags, Instant 9ood Mies, 9ruit Pulp etc.
Informationsource agencies:+
+B.
M#M6 dropped as a source agency.
Chemical and 9ertiliHer 8epartment added
#o E minus + K + increase
DICL+J*/ Items used from Dational Industrial Classification 0DICL==4
Increased 'eight gi$en to mining and electricity
8ecreased the 'eight gi$en to manufacturing
7s3ed M#M6 ministry to de$elop a separate inde for M#M6 sector
Co(pariso%* W I, C I, II
What did "e learn so far?
5$SI24 WPI CPI IIP
&5") Aespeyre!s formula same same
"&5) 6conomic ad$isor C#5 C#5
"&6D) 'ee3ly % monthly monthly monthly
"&6@6 they get data) ministries, dept., industries D##5 and Postal 'or3ers ministries, dept, bodies
Components : M9 Primary 9uel categories : M9 Mining electricity
types only one "PI @ural, urban, combined #ector 'ise and goods Usage 'ise.
items B/B B*
base year ==4 =+= ==4
C5@6 nonLfood manufacturing headline 0foodEfuel * industries
[Act 7] WH4 W I, C I, II i(porta%t?
Res, 'hy bother calculating "PI, CPI and IIP in the first placeS)
Why is W I i(porta%t?
Monitors the dynamic mo$ement of prices.
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"ho "hy they use "PI)
o$ernment To design trade, fiscal and other economic policies
@?I To design monetary policy, under Multiple indicator method: @?I used "PI. 0?ut @ajan started using CPIfor this purpose, since 7pril =+4, on Urjit patel recommendation.
?usinessmen In the business contractL to calculate price escalation clauses in the supply of ra' materials, machineryand construction 'or3.
Why C I i(porta%t?
Measures the price of goods that households consume.
o$ernment Monitoring price stability.
Calculating 8earness 7llo'ance
Using as 1869A7T5@2 in national accounting
@?I To design monetary policy from 7pril =+4 on'ards, based on Urjit Patel recommendation.
?usinessmen Calculating 8earness 7llo'ance
Why II i(porta%t?
+. The IIP measures $olume changes in the production of an economy
. Pro$ides a measurement that is freeof influences of price changes
. 8ata used in o$ernment policy planning purposes, Industrial 7ssociations, @esearch Institutes and 7cademicians.
[Act 8] Other i%"e+es
/er6ice per#or(a%ce i%"ices -/ I.
Inde 8oes it co$er ser$ice sector inflation)
"PI Dope
CPI Partially e.g. education, healthcare
IIP It doesn!t capture 1inflation2. It captures increase < decrease in 1production2.
?ut here too, #er$ice sector production not counted.
7ny'ays, 6conomic 7d$isor started ser$ices price indices 0#PI. 0recall he also does the "PI.
5n eperimental basis.
To capture inflation in follo'ing ser$ice sectors:
@ail'ays#PIs
freight and passenger ser$ices
?an3ing#PIs
ser$ices for 'hich ban3s charge fees, commissions, bro3erage, etc.
@?I gets them data from + ban3s 0+ sar3aari, 4 pri$ate, foreign, + cooperati$e and + @@?.
Postal#PIs
only 8epartment of Posts.
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&ardly tells anything, because it ID5@6# follo'ing:
Pri$ate courier companies
postal ser$ice to armed forces 0for national security issue
money transfer $ia "estern union, IP5, money order- re$enue stamps.
Telecom#PIs
only for cellular ser$ices on the basis T@7I report. uarterly basis.
7ll of them use same Aaspeyre!s formula.
9altic $ry i%"e+
Aondon based ?altic 6change, releases this inde number on daily basis.
Measures cost to transport ra' materials by sea.
ro"ucer rice I%"e+ - I.
measures price change from the perspecti$e of the seller.
i.e. a$erage change in selling prices recei$ed by domestic producers for their output.
Co$ers both goods E ser$ices. 0"PI only co$ers goods
#ellers! and purchasers! prices differ due to go$ernment subsidies, taes and distribution costs. Therefore, better to use PPI.
?coH CPI doesn!t co$er this.
Majority of the 56C8 countries measure inflation based on Producer Price Inde 0PPI
"PI has been replaced in most countries by Producer Price Inde 0PPI due to the broader co$erage pro$ided by the PPI in
terms of products and industries
PPI has more concordance 'ith system the national account. 0compared to "PI
Therefore, 5ffice of the 6conomic 7d$iser 0567 has ta3en up the initiati$e for constructing a Producer Price Inde 0PPI
for India.
#ome notable countries
Ireland uses ?5T& "PI and PPI
2nl WPI 2nl PPI
Fapan, 7ustralia, reece, Dor'ay and Tur3ey Canada, U#7 , 7ussies, #.Oorea, UO, #pain, Italy
/o(e (ore i%"e+es
@?I Inflation epectation sur$ey of households.
9or three months and + year ahead periods.
5?ICU# 5rder ?oo3s, In$entories and Capacity UtiliHation #ur$ey 05?ICU#
?y @eser$e ?an3 of India 0@?I
To assess consumption and in$estment demand
#ur$eying ;== companies in manufacturing sector
Timeframe: Nuarterly
If .altic number meaning
Increases More ra' material shipped. "orld economy gro'ing
"as highest in May ==* 0;++,*==.
8ecreases @e$erse impact on economy.
7fter ==*, 7fter that continuous decline due to subprime, and euroHone crisis.
Ao'est May =+4 0J*
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7#I 7nnual sur$ey of Industries
?y D##5 under #tatistical ministry
To sur$ey manufacturing sector!s gro'th and structure
#ur$eying e$ery mfg. unit employing += 'or3ers or more.
7nnually
?C India Manufacturing Purchase Managers! Indices 0PMI.
Monthly basis
D66@@66@ 'ill see them 'hen I publish articles for chB and *(.in the meantime you may refer tothepo'erpointor lecture$ideos..
[Act :] ;aspeyre, compared to the prices in base year ==4.
In =+, If I get the number +*=K*=> inflation than base year 0==4
?ut compared to =+4, the =+!s year on inflation 'ould be 0+*=L+/=.
#tatistically 'e can epress 'ith this formula:
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Dote:
some
boo3s
use
P=