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  • Consumer level price changes of goods and services are measured by CPI.
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  • Earlier India did not have a single CPI but there were four CPI namely CPI-Industrial workers, CPI- Rural Labourer, CPI-Agricultural Labourer and CPI-Urban Non-Manual Employees.
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  • However CPI-Urban Non-Manual Employees has been discontinued and a new index was launched.
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  • New CPI index (base 2010) was launched in January 2011 which measures changes in prices of goods and services consumed by rural and urban population.
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  • In the new CPI, food which has been major contributor to inflation has been given higher weightage.
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  • However, the most important factor is that new CPI captures price changes in service sector (contributing 60% of GDP) which is not captured in the whole sale price index (WPI).
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  • After the Urjit Patel Committee report, RBI monitors inflation at CPI level more closely.
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  • Charts below shows broad breakup of the index and CPI-inflation trend over the years.
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Percentage of CPI

 
Inflation Trend

 

  • We can observe from the above chart that food having highest weightage of around 49% has been the major contributor for the high inflation.
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  • Food inflation has increased from around 4% in January 2012 to 9.14% in July 2014. Food inflation had gone as high as 14.45% in November 2013.
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  • Over the years, clothing, bedding and footwear inflation has decreased from around 22% in January 2012 to 8.73% in July 2014.
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  • Miscellaneous inflation which mostly includes composition of service sector has hovered around 6 to 9% over the years.
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Difference between component weightings in CPI-Rural and CPI-Urban
 
Difference between component weightings in CPI-Rural and CPI-Urban

 

  • From the above chart, we can observe that CPI-rural level has higher component weightings with food having share of around 59%.
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  • Most important difference is that housing inflation is not included in CPI-rural and only captured at CPI-urban level.
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