The government has again reported negative inflation rate for the week ended on 22 August 2009. The inflation rate is based on the Wholesale price index. The government’s view is that the wholesale price index is more closely tracked than consumer-price gauges for economic analysis, as it captures prices of a higher number of products and is released weekly. How the WPI can be negative when the prices of food items at retail level have gone up over 20%?
Union Finance Minister announced that 2004-05 as the base year for the calculation of inflation rate based on wholesale price index (WPI) series in the country. Replying to a question on price indices in the Lok Sabha, the minister said the WPI series is being upgraded with base year 2004-05 in lieu of the existing one with base year 1993-94. He said that the index would provide a better picture of the current scenario of prices.
On the other hand, the consumer price index, which is released on a monthly basis, rose 11.89 percent in July from 9.29 percent in June, as per the government data. The basket in consumer price index measures prices of logically used items by the common man. This index takes into account prices for house rentals, toiletries, phones and school fees.
There are some realistic recommendations made by DNA Analysis, viz., WPI is the least reliable barometer of the price behavior and hence should not be used as a yardstick to express inflation affecting the common man. Consumer price index should be made more comprehensive and should be used, calculated on a monthly basis.
The present arrangement of calculating the inflation rate based on WPI is faulty and should not be used for the calculation of any compensations or allowances.
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