The WPI is more accurate now with a wider basket to arrive at the numbers
The new inflation index has already commenced. The index has changed the composition of the Wholesale Price Index (WPI) series. The new data series lowers weightage of the more volatile food items and correspondingly hikes that of core manufactured products.
The new series has incorporated consumer items such as ice cream, mineral water, refrigerator, computer, and TV. The price volatility in these items is relatively limited as compared to fuels or food products. The data released by the Ministry of Commerce and Industry is the first that uses the new base year of 2004-05 and covers a wider basket of goods. The old series used 1993-94 as the base year. The release of the current series of WPI with 1993-94 as its base will be discontinued.
The new basket of the WPI has a broader representation of commodities, change in base year and lower weights accorded to primary articles. The new index includes 555 commodities in the manufactured goods segment as against 318 earlier.
The new series of the WPI is based on the recommendations of a working group. The working group submitted its technical report in May 2008 and recommended the change of the base year to 2004-05. The new series comprises different weightage levels, relative to the changes in the economy over a period of time.
For example, the weight of manufactured products increased from 63.74 percent as per the 1993-94 base price levels to 64.97 percent now. On the other hand, the weight of primary articles in the new index has come down to 20.11 percent as against 22.02 percent earlier. As such, the food prices will still comprise a fifth of a share in the WPI index.
The new WPI with 2004-05 as its base year includes nearly 237 more manufactured items than the 1993-94 Index. The new WPI is expected to give a realistic picture of price rise. The broad-basing is expected to smoothen the Index. There is a substantial increase in the number of items in the commodity basket and number of quotations to collect price data in comparison to the existing series.
The new WPI series now measures a total of 676 items, an increase by 241 items from the previous list comprising 435 items. The basket of manufactured products has surged from the earlier 318 items to 555 now. The list under primary articles group has gone up from 98 to 102. Earlier, the Department of Industrial Policy and Promotion (DIPP) had changed the frequency of the WPI series to monthly releases from the earlier practice of weekly releases though it continues to provide weekly inflation numbers for sensitive items such as food and fuel.
For August, the WPI inflation stood at 8.5 percent under the new series as against 9.5 percent in the old series.
The DIPP said that it will also come out with a Services Price Index (SPI) by the end of 2010-11. This will include indices of banking and finance and also trade and transport. Other services which could be taken up at a later date are ports, aviation, telecom, and post and telegraph, among others.
