CHAPTER 5: Prices and Inflation: Successful Tight-Rope Walking. - The Core IAS

CHAPTER 5: Prices and Inflation: Successful Tight-Rope Walking.

 

1.Housing Price Index (HPI) published by National Housing Bank (NHB),

ü  NHB RESIDEX, India’s first official housing price
index, was an initiative of the National Housing Bank (NHB) undertaken at the
behest of the Ministry of Finance, Government of India. The index was
formulated under the guidance of a Technical Advisory Committee (TAC)
comprising of stakeholders from the housing market. It was launched in July,
2007 and updated periodically till March 2015, taking 2007 as the base year.
During this period, the coverage of NHB RESIDEX was expanded gradually to 26
cities.

ü  Initially, NHB RESIDEX was computed using market data,
which 2010 onwards, was shifted to valuation data received from banks and
housing finance companies (HFCs). Thereafter, data was sourced from Central
Registry of Securitisation Asset Reconstruction and Security Interest of India
(CERSAI) from 2013 to 2015.

ü  With a view to make the NHB RESIDEX more current and
up-to-date with the prevailing macro-economic scenario, NHB undertook a review
of the processes and methodology used for computation of the index along with
the base year and segmentation used.

ü  Thereafter revamped NHB RESIDEX with larger scope and
wider geographical coverage was published. This index is computed taking FY2012-13
as base year and is updated up to March 2018. With effect from April 2018, a
new series with FY2017-18 as new base year has been published and is updated up
to the current quarter. In order to maintain continuity in the time series
data, NHB RESIDEX 2012-13 series subsequent to change in base year has been
calculated using backward linking factor.

2.PRICE INDEXES

S. No

 

CPI- UNME

CPI – IW

CPI – AL

CPI- (RL)

WPI

1.

Weights allocated on the basis of

Consumer
Expenditure Survey

Wholesale

Transactions

First

1958-59

1958-59

1956-57

1983

Latest

1982-83

2016

1983

1983

2.

Base year of the
Current Series

1984-85

2016

1986-87

1986-87

2011-12

3.

Number of items/ commodities in basket

146-365

463

260

260

697

4.

Number of Centres /
villages

59

88

600

600

8,331

quotations

5.

Time lag of the index

2 weeks

1 month

3 weeks

3 weeks

3 weeks

6.

Frequency

Monthly

Monthly

Monthly

Monthly

Monthly

 

3.WPI WEIGHATGE:

S.-No

Commodity sr
“Groups

.Weight-

No. of , Articles

1

Primary Products

22.62

117

2

Fuel & Power

13.15

16

3

Manufactured

Products

64.23

564

 

Total

100.00

697

 

4.
Pradhan Mantri Garib Kalyan Anna Yojana
 is
a scheme as part of Atmanirbhar Bharat to supply free food grains to migrants
and poor.
Under this scheme, the center provides 5kg of free food grains
per month to the poor. This is in addition to the subsidized (Rs 2-3 per kg)
ration provided under the National Food Security Act (NFSA) to families covered
under the Public Distribution System (PDS). The food grain and the amount may
be variable.

Divergence between a relatively high Wholesale Price Index (WPI)
inflation and lower Consumer Price Index (CPI) inflation widened in May 2022
primarily owing to a difference in relative weights of the two indices and the
lagged effect of imported input costs on retail prices

3.
The perils of inflation are felt more in developing
economies, where necessities have a higher share in the consumption basket than
in developed countries

4. Pradhan Mantri Bhartiya Janaushadhi Pariyojana : Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP) is a
campaign launched by the Department of Pharmaceuticals to provide quality
medicines at affordable prices to the masses. PMBJP stores have been set up to
provide generic drugs, which are available at lesser prices but are equivalent
in quality and efficacy as expensive branded drugs. It was launched by the
Department of Pharmaceuticals in November 2008 under the name Jan Aushadi
Campaign. Pharmaceutical & Medical Devices Bureau of India (PMBI) is the
implementation agency for PMBJP.

 

5.Divergence between CPI & WPI

ü  Inflation dynamics in India since the outbreak of the
pandemic have been influenced by various domestic and global factors. While the
pass-through of international prices to wholesale prices is relatively quick,
it impacts retail prices with a lag. This creates a wedge between WPI and CPI
inflation rates. It is also due to the difference in composition and weights
assigned to different commodities in the two indices

ü  The headline inflation based on WPI and the CPI-C
started diverging in March 2021, as WPI inflation touched double digits due to
unfavourable base effects while CPI-C inflation remained stable. The wedge
between CPI-C and WPI inflation continued to widen before reaching its peak at
10 per cent in November 2021. Thereafter, the gap began to narrow until April
2022. The path to convergence, however, was short-lived as another inflationary
pressure started building up in February 2022 as a consequence of the
Russia-Ukraine conflict. The major brunt of commodity supply chain disruption
and increased demand for essentials was reflected in WPI with a short lag of 2
months. As a result, the two indicators of inflation again started diverging in
May 2022. It was only after global commodity prices, including crude oil,
softened and the effects of strong supporting domestic factors like favourable
monsoon, vaccination-led economic resumption, etc., started to be felt that the
wedge began to narrow, and it closed in November 2022, after 21 months. It also
indicated the near completion of the pass-through of high input costs to the
retail segment.

ü  The convergence between the WPI and CPI indices was
mainly driven by two factors. Firstly, a cooling in inflation of commodities
such as crude oil, iron, aluminium and cotton led to a lower WPI. These
commodities occupy a larger weight in the WPI as compared to the CPI. Further,
these commodities are highly vulnerable to fluctuations in international prices
and are used intensively by industries producing wholesale goods. As the prices
cooled for these commodities, the two measures of inflation began to converge.
Secondly, CPI inflation rose due to an increase in the prices of services.
Services form a part of the core component of the CPI-C but are not included in
the WPI basket.

Some other key Points

ü  International prices of edible oils surged in FY22
owing to a shortfall in global production and an increase in export tax levies
by various countries. India meets 60 per cent of its edible oils demand through
imports, making it vulnerable to international movements in prices. For
instance, sunflower oil, which makes up 15 per cent of our total edible oil
imports, is procured mainly from Ukraine and Russia.

ü   The National
Pharmaceutical Pricing Authority was set up as an attached office of the
Department of Chemicals and Petrochemicals (now Department of Pharmaceuticals
since July, 2008) on 29th August 1997.

 

 

 


 

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