Consumer price index numberPresentation Transcript
Consumer Price Index Number is an index number of the cost
met by a specified class of consumers in buying a ‘Basket of
goods and services’.
Here, Basket of goods and services’ means goods and services
needed in day to day life of the specified class of consumers.
The pattern of consumption of goods is different in different
classes. And so, the general index numbers fail to indicate the
changes in costs with regard to various classes of consumers.
Here, ‘Class of consumers’ means group of consumers having
almost identical pattern of consumption. Generally, the
classes are those of workers of a factory, people belonging to a
particular community, government employees, etc.
CONSUMER PRICE INDEX
The consumer price index numbers, also known as cost of living index
numbers, are generally intended to represent the average change over
time in the prices paid by the ultimate consumer of a specified basket
of goods and services.
The need for constructing consumer price indices arises because the
general index numbers fail to give an exact idea of the effect of the
change in the general price level on the cost of different classes of
people in different manners.
At present, the three terms, viz. cost of living index, consumer price
index and retail price index are used in different countries with
practically no difference in their connotation.
1. Consumer Price Index Numbers indicate the changes in
the consumer prices. And so, they help governments in
formulating policies regarding control of
price, taxation, imports and exports of commodities, etc.
2. They are used in granting allowances and other facilities
3. They are used for the evaluation of purchasing power of
money. They are used for deflating money.
4. They are used for comparing changes in the coat of living
of different classes of people.
There are two methods of computation of consumer price index
number. They are –
a. Aggregative expenditure method.
b. Family budget method.
Aggregative expenditure method
Here the quantities used in the base year are taken as weights. Thus, the
consumer price index number by this method is: P01 = (Total expenditure in
the current year / Total expenditure in the base year) x 100
Family budget method:
Consumer price index number by this method is the weighted arithmetic mean
of the price relatives. The weights assigned are the expenditure in a normal
period. Thus, the consumer price index number is: P01 = (ΣWI / ΣW) where W
= P0Q0 and I = (P1/P0)
The Wholesale Price Index (WPI) is the price of a representative
basket of wholesale goods. Some countries (like India and The
Philippines) use WPI changes as a central measure of inflation.
However, United States now report a producer price index instead.
The Wholesale Price Index or WPI is "the price of a representative
basket of wholesale goods. Some countries use the changes in this index
to measure inflation in their economies, in particular India –
The Indian WPI figure was earlier released weekly on every Thursday
and influenced stock and fixed price markets. The Indian WPI is now
updated on a monthly basis. The Wholesale Price Index focuses on the
price of goods traded between corporations, rather than goods bought
by consumers, which is measured by the Consumer Price Index. The
purpose of the WPI is to monitor price movements that reflect supply
and demand in industry, manufacturing and construction. This helps in
analyzing both macroeconomic and microeconomic conditions.
The wholesale price index (WPI) is based on the wholesale
price of a few relevant commodities of over 240
commodities available. The commodities chosen for the
calculation are based on their importance in the region and
the point of time the WPI is employed.
For example in India about 435 items were used for
calculating the WPI in base year 1993-94 while the
advanced base year 2004-05 uses 676 items. The indicator
tracks the price movement of each commodity individually.
Based on this individual movement, the WPI is determined
through the averaging principle.
The following methods are used to compute the WPI:
It is the weighted arithmetic mean based on the fixed
value-based weights for the base period.
Ten-Day Price Index
Under this method, “sample prices” with high intra-
month fluctuations are selected and surveyed every
ten days through phone. Utilizing the data retrieved by
this procedure and with the assumption that other
non-surveyed “sample prices” remain unchanged, a
“ten-day price index” is compiled and released.
The Industrial Production Index (IPI) is an economic
indicator published by the Federal Reserve Board of the
United States that measures the real production output of
manufacturing, mining, and utilities. Production indexes
are computed mainly as fisher indexes with the weights
based on annual estimates of value added.
Since Fisher indexes only preserve growth information, the
value in the base year (currently 2007) is arbitrarily set at
100. This index, along with other industrial indexes and
construction, accounts for the bulk of the variation in
national output over the duration of the business cycle.
Production data is often received directly from the
Bureau of Labor Statistics and trade associations, both
on physical output and inputs used in the production
process. Each individual index is calculated using the
Fischer index formula.
Investors can use the IPI of various industries to
examine the growth in the respective industry. If the
IPI is growing month-over-month for a particular
industry, this is a sign that the companies in the
industry are performing well.
The all India IIP is a composite indicator that
measures the short-term changes in the volume of
production of a basket of industrial products during a
given period with respect to that in a chosen base
period. It is compiled and published monthly by the
Central Statistics Office (CSO) with the time lag of six
weeks from the reference month.