New series of Consumer Price Index from February 2015

New series of Consumer Price Index from February 2015

According to the news paper report, the Central Govt to release new series of CPI inflation in February.

To present a more accurate and realistic price situation, the government will release next month a new series of Consumer Price Index (CPI) with 2012 as base year for computing retail inflation rate.

BASE YEAR UPDATION OF CONSUMER PRICE INDEX NUMBERS FOR INDUSTRIAL WORKERS (CPI-IW) OF SERIES 2001=100

Introduction
The Consumer Price Index for Industrial Workers (CPI-IW) is an important statistical/economic indicator. It was first introduced on scientific lines with base 1960=100 which was based on the results of Family Living Survey conducted in 1958-59 at 50 industrially important centres. The series was then, updated on base 1982=100 and a revision in 1999-2000 has further updated the base on 2001=100. The current series of CPI-IW with base year 2001=100 covers 78 industrially important centers spread across the country.

Need for base Updation
The consumer price index purports to measure the change in prices of goods and services consumed by index population over time in reference to a base year. Due to following important considerations, there is a constant need to change this base year to a more recent one.

1.The basic and essential frame work behind Consumer Price Index for Industrial Workers construction used in India is “theory of fixity”. As it is needed to reflect the actual change in price level owing to changes only in macroeconomic environment, the obvious consequence is that every other parameter affecting price of the commodity like centre, sector, market, shop, commodity, specification etc has to be fixed for the entire life of a series. So that only change observed is in the current price level. Such fixation may not be justifiable over a period of time due to metamorphosis that are bound to occur at various levels in these fixed parameters. The change at any level can be reflected only while updating the base year where we can update any parameter of a commodity be it centre, market, shop or specification that may influence its price change.

2. Over the period of time, the general law of demand suggests that, other things being equal, consumer have a tendency to shift their consumption pattern as per changing trends and way of living. This change can only be reflected in the index by conducting a fresh income and expenditure survey during base updation procedure and subsequently fresh weights to be used for compiling the index for the next series

3. It is a well established fact that use of Laspeyres type formula for Index Compilation tends to overestimate the index as the deviation from the base year increases. Therefore, base updation at regular intervals is crucial to control this upward bias.

4. Any desirable change at technical level to absorb best international practices can be integrated only at the time of base updation.

Various Organizations at different levels have recommended that base should be updated frequently at most at a gap of ten years.

International Labour Organization

National Statistical Commission

Index Review Committee by Prof. G.K. Chaddha

Methodology for Base Updation
All the technical papers pertaining to various issues in updating the base are prepared by Labour Bureau on the basis of existing guidelines of TAC on SPCL in consultations with State Governments.

These technical issues are examined and approved by various committees at various levels such as STC, subgroup of TAC on SPCL, TAC, NSC etc before their implementation at each step.

Committees and Its compositions
National Statistical Commission(NSC)
Technical Advisory Committee on Statistics of Prices and Cost of Living(TAC on SPCL)
Subgroup of Technical Advisory Committee on Statistics of Prices and Cost of Living(TAC on SPCL)
Standing Tripartite Committee(STC)

Scope and Coverage of New Series
The first issue is to define scope and coverage of the survey. Labour Bureau has prepared a technical paper and has selected 88 centres updated according to their importance in terms of employment in seven selected sectors in consultation with the State Governments. The centres and the decision to stick to existing seven sectors while taking up the construction and handloom sector on pilot basis at two centres each has been approved by STC and TAC on SPCL
1. Agenda paper of first meeting of STC held on 02.07.13
2. Minutes of first meeting of STC
3. Agenda paper of first meeting of subgroup of TAC on SPCL held on 14.10.13
4. Minutes of first meeting of TAC on SPCL.

Determination of Sample Size
After determination of Scope and Coverage, a fresh Working Class Family Living Income and Expenditure Survey (WCFLI&E) is to be conducted, required to obtain weights for the new series. For this purpose, the preliminary issue is the determination of number of sampling units to be surveyed. The importance of sample size to the entire operation of a survey is widely acknowledged fact in any large scale sample survey. It is not only important in terms of how many households are to be interviewed but also in view of numbers of investigators to be engaged and amount of workload for each interviewer. For the new FLS for the new base, 48,384 (plus 864 additional coverage for Handloom & Construction sectors) working class families have been finalised to be covered in 88 centres at all India level as against sample coverage of 41,040 working class families in 78 centres during 1999-2000 survey. The said figure has been computed using existing methodologies and have been approved by STC as well as TAC.

1. Agenda paper of Second meeting of STC held on 21.02.14
2. Minutes of Second meeting of STC
3. Agenda paper of second meeting of subgroup of TAC on SPCL held on 22.06.14
4. Minutes of second meeting of subgroup of TAC on SPCL

Market Survey
There are two essential constituents of CPI (IW) namely; weighting diagram/expenditure weights and retail prices. For a smooth collection of recurring prices over time, the price collection machinery including selection of markets, shops as well as finalization of specification schedule in all 88 selected centres a market survey has to be established. For this purpose a well organized market survey is being launched by the Labour Bureau in all the centres. Prior to its launch Labour Bureau organized Index user’s conferences in three major cities namely Mumbai, Chennai and Kolkata. The purpose was to sensitize various stakeholders of the index about the various underlying aspects of the index and its base updation, to ensure transparency owing to its direct financial implications and policy formulation in addition to absorb any viable view of the stakeholders into the index at this very crucial stage of base updation.

A fresh working class family living income and expenditure survey is to be conducted in all centres to extract weights for compilation of index. Since the survey is to be conducted by National Sample Survey Office(NSSO), necessary consultations are in process and the survey will commence very shortly.

Tabulation, Derivation of weights from the survey results, recording of base year prices and subsequent of current prices will be done in due course and will be integrated into the index formula to generate a new series of index.

Authority : Labour Bureau