Headline inflation


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.

A measurement of price iinflation that takes into account all types of inflation that an economy can experience. Unlike core inflation, headline inflation also counts changes in the price of food and energy. Because food and energy prices can rapidly increase while other types of inflation can remain low, headline inflation may not give an accurate picture of how an economy is behaving. Headline inflation is more useful for the typical household because it reflects changes in the cost of living, while core inflation is used by central banks because core inflation is less volatile and shows the effects of supply and demand on GDP better.

 For long, point-to-point changes in the wholesale price index (WPI) were considered the headline inflation rate. The WPI is a weighted average of the prices of most goods produced in the economy, with the weights being their shares in domestic output and their prices those prevailing in wholesale markets. It is closer to a producer price index, reflecting more what producers charge their immediate buyers, rather than the prices that prevail at the end of the trading chain, in retail markets.

Internationally consumer price indices rather than producer price indices are the standard for measuring inflation, since they reflect the prices that ordinary citizens face and pay. India does have multiple consumer price indices (for industrial workers, non-manual employees and agricultural/rural labourers) used to assess the increase in the prices paid by these sections for the commodity bundles they consume. However, inflation measured by the WPI was treated as the measure of headline inflation.

Early in 2012, the Central Statistical Organisation of the government of India released a new, national, monthly, consumer price index (CPI), with separate indices for rural and urban areas and covering a set of final consumption goods, weighted by their share in the consumption basket and with their prices collected from retail markets. The release was supposed to mark the transition to the use by the government and the central bank of this new index rather than the wholesale price index (WPI) to compute the headline inflation rate. Given that, it is surprising that barely a year and a half since annual point-to-point inflation rates have been calculated based on this index (which was first released for January 2011, making January 2012 the first month for which we have an annual rate), the government and the media have returned to focusing on WPI-based inflation.
 


Thursday, 03rd Mar 2016, 11:46:56 AM

Add Your Comment:
Post Comment