1.

Self study: ch7inflation and Biz

cycle Ramesh
Singh. Only
definitions &
impact. line by line
2.Lecture: selected

Inflation related Topics

Index WPI,
theor CPI,
y
IIP

Surve Misc.
y
Index
analy es
sis

2015
Rs.15

2012
Rs.10

=15/10=50%

??

2012
Rs.10

??

2015
Rs.15

2012

2015

10

15

50

60

100
0

1200

106
0

1275

20.3
%

But are all

commodities
used in same
quantity
and frequency
every day?

weight

201
2

2015

3
0
6
0
1
0
Total

1
0
50

15

Price
ratio:
2015/201
2

Ratio x
wt.

1.5

45

1.2

72

120 1.2
0
Inflation:
129/100 =

12

60

100
0

Total

Inflation: Laspeyres formula (German)

Inflation: Laspeyres formula (alternate)

Laspey
Paasche
res
index
Geomet
ric
mean
Fischer index: removes
item substitution bias
when prices rise

Inflation Topics

Index
theory
for more
Ramesh
Ch.7

WPI,
CPI,
IIP

Surve Misc.
y
Index
analy es
sis

calculating inflation

Basket
?
Who

Base

Trend
analysis

calculating inflation / production

Parame
ter
WPI
Laspe
yres
L5/P1
.pptx

WHO?
Eco. Advisor,
DIPP

Base
2004
2010

CPI

CSO

IIP

CSO

2012
2004

CSO

2004
2011

GDP

calculating inflation / production

Basket
?
Who

Base

Trend
analysis

IIP
CPI
3
6
Cat
cat.
WPI
.
3
cat.

IIP T
otal
com
p
(682 onent
Tota
s
l WE
)
IGH
T (1
000
)

MFG
Mining
Electricity

IIP: 8 core industries: ~38% of weight

1.
2.
3.
4.
5.
6.
7.
8.

Coal
Fertilizer
Electricity
Crude Oil
Natural Gas
Refinery Products
Steel
Cement

1. Compared to 2011
slowdown
2. 8 core industries- marginal
3. Thermal power
4. Steel production coz
cheaper imported and
demand
5. Gas- oil production bcoz
1. No big discoveries

IIP
Survey
analysis

IIP
CPI
3
6
Cat
cat.
WPI
.
3
cat.

category2

WPI
category1

category3

WPI: Total 676 items= headline WPI

W PI

Top 3 subweight
(DECREASIN
G)

MFG.
~65%
1.Chem
2.Metal
3.Food

c om
pon
WEI
ents
GH T

PRIMARY
~20%
1.Food
2.Non-food
3.Mineral

Fuel
~15%
1.Oil
2.Electric

Core inflation WPI = headline (food and fuel)

W PI

Top 3 subweight
(DECREASIN
G)

MFG.
(65%)
1.Chem
2.Metal
3.Food

c om
pon
WEI
ents
GH T

PRIMARY
(20%)
1.Food
2.Non-food
3.Mineral

Fuel
(15%)
1.Oil
2.Electric

IIP
CPI
3
6
Cat
cat.
WPI
.
3
cat.

Food,
Bevera Misc.-Health,
ge
Edu,
Recreation
etc.
Core CPI=
Headline CPI
Minus (food &
fuel)

CPI
:6
De
s ce co m p
o ne
ndi
ng
n
we ts
igh
t
Housin
g
Althou Fuel &
Clothi
LIGHT
gh N/A
ng,
in rural
Footw
Pan,
ear
Tobacco,
Desi

CPI weights assigned. Rural housing ignored.

Base year 2010=> 2012

Weights assigned based on
Consumer Expenditure survey
2011
Wt. Household food and fuel
Expenditure ()
Wt. Non-food Expenditure ()

CPI
Reforms
WEF Feb
2015

CPI
Rur
al
Urb
an

Befo
re

After

437

448

450

460

CPI
Reforms
Total
Basket
Items

calculating IIP, WPI, CPI

Basket
?
Who

Base

Economic
Survey

1. World Crude oil, edible oil,

coal price (Chinese
slowdown)
2. Abundant production (FAO)
3. FCI open sale of grains
4. Union allotted 5 million
tonnes of rice to BPL & APL
5. Potato, Onions under
Essential commodities Act

Inflation
Declined
because

1. MEP for Potato & Onions

2. RBI Tight money policy
throughout 2014 (8% Repo)
L1/P1.pptx
3. Wage growth Moderate

Inflation
Declined
because

1. Actual March end 2015.

2. 500 crores
3. Price Stabilization Fund
Management Committee (PSFMC)
4. Chairman: Secretary of Agri.
department
5. Interest free Loan to union and
state agencies as working
capital

Budget
Price
2014
stabilizatio
n fund

1. Buy perishable agro. From

farmers
2. Sell cheap @end user
3. Initial focus onion potatoes.
4. States to setup their own
funds- contribution 50:50
(Gen.), 75:25 (NE)

Budget
Price
2014
stabilizatio
n fund

Inflation Topics

Index WPI,
theor CPI,
y
IIP

Surve Misc.
y
Index
analy es
sis

PPI: Both goods + services (WPI

only goods)
PPI: Inflation without TAXES. (WPI
includes taxes & APMC levies)
Measure price change from sellers
perspective
Most OECD nations use PPI
Better sync. With System of
National Account (SNA), more
items, Broader coverage.

Inflation
Producers
price index

Planning commissions Abhijit

Sen and Saumitra Chaudhuri
Committees advocated PPI
Economic Advisor, DIPP
initiated. Sought Japanese
help.
Prof.BN Goldar Committee
(Sep 2014)

Inflation
Producers
price index

Inflation
Service covered? WPI- no, CPIService
partial, IIP- no.
performan
Hence SPI on advice of Prof.
ce index
CP Chandrasekhar Committee
by CSO

Index of service production (ISP) Base year 2004

Railw Banki Postal Telec

ay
ng
om

1. London based Baltic

exchange
2. Daily data
3. Cost to transport raw
material by sea
4. = world economy to grow
5. = economy to slowdown

Inflation
Baltic dry
index

Baltic dry Index (Survey Page 116)

1. Inflation expectation survey

for households
2. RBI Since 2005
3. Covering 5k houses in 16
cities
4. 3 months and 1 year ahead.
5. Dec 2014 data: households
expected moderate inflation

Inflation
Household
expectatio
n

Misc. indexes

inflation
PPI
SPI
Baltic
Household

productio
n
ASI
OBICUS
SBI

1. Order Books, Inventories and

Capacity Utilization Survey
2. RBI To assess consumption &
investment demand
3. ~2500 mfg companies
4. Quarterly released
5. Survey says it ()

index
OBICUS

1. Annual survey of industries by

CSO
2. Registered units in Factories act
1948 (10 workers- with power;
20 workers without power)
3. Electricity companies yes.
4. Movie companies, personal
service etc. surveyed but DATA
not tabulated.

index
ASI

1. Defense, oil, hotel caf,

computer, technical training
inst. And other services
excluded
2. ~2.17 lakh units covered in
2012s survey
3. Top 5 industrialized states:
Maharashtra, Guj, TN,
Karnataka, UP

index
ASI

1. HSBCs purchasing manager

index economic activity.
2. SBI composite index
(launched Dec 2014)
3. Monthly and yearly index
4. 0-100 scale
5. >50 = Economic growth
6. <50 = Economic contraction

index
Private
entities

1.
2.
3.
4.
5.

Loan portfolio
Consumer Expenditure
Mining
Inflation & interest rates
Exchange rates

SBI index
5
Parameter
s covered

Ranking
FTP2015
TPP,
RCEP