RBI moots new index to measure inflation

It has proposed a Producer Price Index in place of the Wholesale Price Index to bring price movement of services under the structure.

Reserve Bank Governor D Subbarao has proposed a producer price index (PPI) saying that the present structure of measuring inflation does not capture the price movement of services and is a hybrid of rate quotes.

Producer Price Index (PPI) will be better able to measure the average change over time in the sale prices of domestic goods and services.

Sellers and purchaser prices differ due to government subsidies, sales and excise taxes, and distribution costs.

The RBI Governor further said that core inflation gives a better picture of price trend as it is less volatile Wholesale Price Index (WPI) -based inflation.

Core inflation is usually estimated by excluding food and energy prices from the basket of goods and services that represents a household’s spending.

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