MUMBAI: To make inflation figures more realistic, the Reserve Bank is planning a 'Harmonised Consumer Price Index' even as the rising clout of services in the consumption basket has made the Wholesale Price Index less representative.
"In parallel, we are doing technical work on computing a Harmonised Consumer Price Index, and we are in consultation with the government in this regard," RBI Governor said at the Banco Central de Chile.
There are occasions when divergence between WPI and CPI is larger than usual. In view of these considerations, we do monitor and disseminate all the CPI indicators, he said.
Reddy said the increasing importance of services in the consumption basket is making the Wholesale Price Index (WPI) - the main measure of inflation - less representative.
A single CPI index could be even less representative as there is differing consumption trends for the rich and the poor, the rural and the urban and also among regions across the country, he said.
"We do not have the concept of core inflation but for purposes of analysis as well as articulation, we identify the impact of fuel- and food-price shocks," he said.
These two items are often subject to shock both external and domestic. The two items also have a large weight in the basket, especially of consumption. It is also difficult, ex ante, to differentiate between the shock and the permanent components, he added.
Speaking about the inflation target, Reddy said the Reserve Bank, since three years, have nevertheless articulated, with significant impact, tolerance limit of inflation at around five per cent.
Reddy said that has since been embedded in inflation expectations as noticed in severe adverse reactions when WPI exceeded five per cent.
The goal is to anchor inflation expectation in India so as to align them with the global levels as soon as possible for ensuring smooth economic integration with the global economy, he said.
Making a comment on inflationary trend, Reddy said the inflation rate accelerated steadily from an annual average of 1.7 per cent during the 1950s to 6.4 per cent during the 1960s and further to 9.0 per cent in the 1970s before easing marginally to 8.0 per cent in the 1980s.
However, the inflation rate declined from an average of 11 per cent during to 5.3 per cent during the second half of the 1990s ) and further to 4.9 per cent during , he said.
More recently during , WPI based inflation rate increased from 4.1 per cent at the end of March 2006 to an intra-year peak of 6.7 per cent at end-January 2007 and remained firm in the range of 6.1-6.6 per cent in the succeeding weeks before moderating to 5.7 per cent by the end of the financial year, he said.
[http://economictimes.indiatimes.com/News/Economy/Finance/RBI_working_on_harmonised
_Consumer_Price_Index/articleshow/msid-2110020,curpg-1.cms]
"In parallel, we are doing technical work on computing a Harmonised Consumer Price Index, and we are in consultation with the government in this regard," RBI Governor said at the Banco Central de Chile.
There are occasions when divergence between WPI and CPI is larger than usual. In view of these considerations, we do monitor and disseminate all the CPI indicators, he said.
Reddy said the increasing importance of services in the consumption basket is making the Wholesale Price Index (WPI) - the main measure of inflation - less representative.
A single CPI index could be even less representative as there is differing consumption trends for the rich and the poor, the rural and the urban and also among regions across the country, he said.
"We do not have the concept of core inflation but for purposes of analysis as well as articulation, we identify the impact of fuel- and food-price shocks," he said.
These two items are often subject to shock both external and domestic. The two items also have a large weight in the basket, especially of consumption. It is also difficult, ex ante, to differentiate between the shock and the permanent components, he added.
Speaking about the inflation target, Reddy said the Reserve Bank, since three years, have nevertheless articulated, with significant impact, tolerance limit of inflation at around five per cent.
Reddy said that has since been embedded in inflation expectations as noticed in severe adverse reactions when WPI exceeded five per cent.
The goal is to anchor inflation expectation in India so as to align them with the global levels as soon as possible for ensuring smooth economic integration with the global economy, he said.
Making a comment on inflationary trend, Reddy said the inflation rate accelerated steadily from an annual average of 1.7 per cent during the 1950s to 6.4 per cent during the 1960s and further to 9.0 per cent in the 1970s before easing marginally to 8.0 per cent in the 1980s.
However, the inflation rate declined from an average of 11 per cent during to 5.3 per cent during the second half of the 1990s ) and further to 4.9 per cent during , he said.
More recently during , WPI based inflation rate increased from 4.1 per cent at the end of March 2006 to an intra-year peak of 6.7 per cent at end-January 2007 and remained firm in the range of 6.1-6.6 per cent in the succeeding weeks before moderating to 5.7 per cent by the end of the financial year, he said.
[http://economictimes.indiatimes.com/News/Economy/Finance/RBI_working_on_harmonised
_Consumer_Price_Index/articleshow/msid-2110020,curpg-1.cms]
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