According to the recently released official data, retail inflation based on the Consumer Price Index slowed to 6.58% in February, while the industrial production growth as measured in the Index of Industrial Production (IIP) quickened to 2% in January amid subdued performance by the manufacturing sector.
Reason for the reduction in the inflation:
- As per data from Ministry of Statistics and Programme Implementation, Retail inflation slowed mainly due to easing food prices. Inflation in the food basket was 10.81?February 2020, lower from 13.63% in the previous month.
- The inflation trajectory is expected to continue to moderate led by deflationary trends from falling crude oil prices, lower food prices and weak demand.
- The domestic and global growth expected to face downside risks from the spread of COVID-19 and deflationary forces emerging.
Case of IIP
Official data showed that for January 2020,
- the mining sector output grew 4.4% against a rise of 3.8%,
- manufacturing output rose 1.5% compared with 1.3% in the year-ago month, and
- electricity generation rose 3.1% versus 0.9% in January 2019.
The above figures have opened the room for up to 50 bps of a rate cut by the MPC, with any further easing contingent on the evolving growth environment.
Consumer Price Index (CPI)
- A Consumer Price Index (CPI) is designed to measure the changes over time in the general level of retail prices of selected goods and services that households purchase for the purpose of consumption. Such changes affect the real purchasing power of consumers’ income and their welfare.
- The CPI measures price changes by comparing, through time, the cost of a fixed basket of commodities.
- It is used as a tool by the Government and Central Bank for targeting inflation and monitoring price stability.
- The Reserve Bank of India (RBI) has started using CPI-combined as the sole inflation measure for the purpose of monetary policy.
- As per the agreement on Monetary Policy Framework between the Government and the RBI in 2015, the sole objective of RBI is price stability and a target is set for inflation as measured by the Consumer Price Index-Combined.
- The dearness allowance of Government employees and wage contracts between labour and employer is based on this index.
- Calculated by CSO(Central Statistical Organisation)
Consumer Food Price Index (CFPI)
- It is a component of the all-items Consumer Price Index.
- Consumer Food Price Index (CFPI) is a measure of the change in retail prices of food products consumed by a defined population group in a given area with reference to a base year.
- The Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation (MOSPI) started releasing Consumer Food Price Indices (CFPI) for three categories -rural, urban and combined - separately on an all India basis with effect from May 2014.
- CFPI is also calculated on a monthly basis with 2012 as the base year.
Wholesale Price Index:
- A wholesale price index (WPI) is an index that measures and tracks the changes in the price of goods in the stages before the retail level – that is, goods that are sold in bulk and traded between entities or businesses instead of consumers.
- Wholesale Price Index (WPI) measures the average change in the prices of commodities for bulk sale at the level of the early stage of transactions.
- The index basket of the WPI covers commodities falling under the three major groups namely Primary Articles, Fuel and Power and Manufactured Products. (The index basket of the present 2011-12 series has a total of 697 items including 117 items for Primary Articles, 16 items for Fuel & Power and 564 items for Manufactured Products.)
- Office of Economic Advisor (OEA), Department of Industrial Policy and Promotion, Ministry of Commerce and Industry calculates the WPI.
- Wholesale price index calculated with the 2011-12 base year does not include taxes in order to remove the impact of fiscal policy.
What Is Deflation?
Deflation is a general decline in prices for goods and services, typically associated with a contraction in the supply of money and credit in the economy. During deflation, the purchasing power of currency rises over time.
Index of Industrial Production (IIP)
- Meaning: IIP is an index that tracks manufacturing activity in different sectors of an economy.
- Published by: Index of Industrial Production India or IIP data is compiled and published by CSO every month. CSO or Central Statistical Organisation operates under the Ministry of Statistics and Programme Implementation (MoSPI).
- Base year: IIP index is currently calculated using 2011-2012 as the base year.
- Components: Electricity, crude oil, coal, cement, steel, refinery products, natural gas, and fertilisers are the eight core industries that comprise about 40 per cent of the weight of items included in the Index of Industrial Production. Mining, manufacturing, and electricity are the three broad sectors in which IIP constituents fall.
- IIP vs ASI: While the IIP is a monthly indicator, the Annual Survey of Industries (ASI) is the prime source of long-term industrial statistics. The ASI is used to track the health of the industrial activity in the economy over a longer period. The index is compiled out of a much larger sample of industries compared to IIP.
Also read: Consumer Protection Bill 2019