ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Inflation with Disinflation?

Decoding India’s Inflation Indices

Inflation with Disinflation?

Price inflation in India as measured by the Wholesale Price Index and the Consumer Price Index has shown diverging trends. While WPI indicates a disinfl ationary situation for 16 months, CPI indicates inflation. Explaining the construction of the two indices, the trends of subgroups of both indices are presented. It is found that the different sample sizes and weightages of commodity groups of both indices and price interventions in the market explains, at least in part, this odd situation of infl ation along with disinfl ation.

India’s inflation, with diverging trends between Wholesale Price Index (WPI) and Consumer Price Index (CPI), has become an important issue of debate over recent months. As per the latest data available for February 2016, the WPI-based inflation has remained negative for the 16th month in a row at -0.9%, while CPI-based inflation has continued to be positive at 5.2%.

Although the divergence in inflation between the consumer and wholesale price indices is not unprecedented, it reached a peak of 9.1 percentage points in September 2015, the highest since the introduction of the new CPI in 2011 (Annexure III, p 127). In this context, an attempt is made to explore the sources of the deviations and divergence of inflation based on different price indices.

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