Context: The Labour and Employment Ministry recently revised the base year of the Consumer Price Index for Industrial Workers (CPI-IW) from 2001 to 2016.
More on the news:
- Change every fifth year: The Labour and Employment Ministry also said that in the future, the Bureau would work towards revising the index every five years.
- Other changes introduced:
- The number of centres, markets and the sample size for working-class family income and expenditure survey was all increased.
- The Minister also released the first index, with 2016 as the base year.
- The number of items directly retained in the index basket has increased to 463 items as against 392 items in the 2001 series
- The Labour and Employment Minister said the Bureau was also expected to bring out the new series of the CPI for agricultural workers, which currently has the base year of 1986-87).
The rationale behind the move:
- The new base year would better reflect the changing consumption pattern.
- It would be giving more weightage to spending on health, education, recreation and other miscellaneous expenses while reducing the weight of food and beverages.
- The weight of food and beverages has declined over time whereas the weight of miscellaneous groups has increased substantially under the 2016 series vis-à-vis earlier series.
- Compilation as per international best practices & guidelines of ILO :
- As per the recommendations of International labour organisation (ILO), Index Review Committee (IRC), and National Statistical Commission (NSC), the base year of price index numbers should be revised at frequent intervals generally not exceeding 10 years.
Consumer Price Index:
- It is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care.
- It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.
- The CPI is one of the most frequently used statistics for identifying periods of inflation or deflation.
- In April 2014, the RBI had adopted the CPI as its key measure of inflation.
- Four types of CPI are as follows:
- CPI for Industrial Workers (IW).
- CPI for Agricultural Labourer (AL).
- CPI for Rural Labourer (RL).
- CPI (Rural/Urban/Combined).
- Of these, the first three are compiled by the Labour Bureau in the Ministry of Labour and Employment. CPI (Rural/Urban/Combined) is compiled by the Central Statistical Organisation (CSO) in the Ministry of Statistics and Programme Implementation.
- The CPI-IW is the single most important price statistics, which has financial implications.
- It is primarily used to regulate the dearness allowance of government employees and the workers in the industrial sectors.
- It is also used in fixation and revision of minimum wages in scheduled employments besides measuring the inflation in retail prices.