Wholesale Price Index (WPI) is not the only inflation metric that RBI monitors - The Reserve Bank of India’s (RBI) past statements have indicated that to assess the price stability risks, it considers not only WPI but also all four types of CPI inflation rates and GDP deflator – headline as well as various components. It also considers a number of other financial and real economy indicators in conjunction with these price indicators for monetary decisions. Having said that, WPI inflation is one of the most important price signals that RBI follows.
What are the issues with CPI inflation? There are several issues with CPI inflation: 1) there is no consolidated country-wide single CPI inflation rate; 2) CPI inflation data is released with a bigger time lag than WPI; and 3) base year for these indices are old. For CPI-Industrial Workers the base year is 2001, for CPI-Urban Non-Manual Employees the base year is 1984-85, and for CPI-Agricultural Labour and CPI-Rural Labour the base year is 1986-87.
Until the new harmonized CPI inflation is compiled, policy makers will continue to focus on WPI inflation.
Controling the WPI - A large part of the non-food WPI represents intermediate products linked to global commodity prices. Hence, it would be impossible for RBI to control WPI inflation by monetary policy. RBI forecasts only indicate it expectations/assumptions of the WPI inflation trajectory; it does not aim to control WPI inflation.
Constituents of Indian Price Index Data.
