Reserve Bank releases paper on HICP

f/121006_01.pdf">released a discussion paper on the construction of a harmonised index of consumer prices (HICP) in India.

According to a release issued by RBI, the discussion paper has been prepared by the central bank's department of statistical analysis and computer services.

"In India, wholesale price index (WPI) is widely used as a measure of inflation for policy purposes and other macro-analysis, though, internationally, consumer price index (CPI) is considered as a suitable measure of inflation and is used as the main yardstick for monitoring price stability in retail market.

"There are four distinct CPI measures compiled in India for different reference population groups. The four CPI measures are Consumer Price Index for Industrial Workers (CPI-IW); Urban Non-Manual Employees (CPI-UNME); Agricultural Labourers (CPI-AL); and Rural Labourers (CPI-RL). These are complied on a monthly basis for major centers along with All-India indices for a limited or specific purposes, such as, wage settlement.

"Ideally, a measure of inflation should cover the entire gamut of goods and services being purchased by a consumer in the domestic market, and should represent the entire spectrum of population in a country. Thus, there had been a long felt need to develop a measure of CPI, which can meet these objectives.

"The paper suggests a methodology to construct a HICP based on existing three CPI series(CPI-IW, CPI-UNME, CPI-RL). The paper recognises that such an HICP may not be an appropriate surrogate of population groups, but possibly could be considered as the next alternative for it.

"This paper explores construction of a harmonised index of consumer prices in the light of the past empirical exercise in the Indian context and the present state of availability of data. Broadly, the results of HICP are a reflection of the movements in the three CPIs at the aggregate level. In view of the limitations outlined in the paper, however, the results need to be interpreted cautiously," the release said.