A sharper lens on inflation could sharpen our policy formulation

India' latest statistical revisions focused on price indices should enrich our view of how prices move across the economy

- T.C.A. ANANT

The Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade, has just released a new series of wholesale price indices, along with an output producer price index, a trial input price index and selected service price indices.

The release marks a major improvement in the availability of Indian price statistics. The importance of these changes lies not merely in updated weights or a new base year. They offer a fundamentally richer view of how prices move through the economy.

The Wholesale Price Index (WPI) revision includes some technical changes in the method of index computation.

Among the major changes is a shift to using gross value of output instead of net traded value; this shifts the focus from domestic availability of goods to domestic production. It also brings the WPI conceptually closer to the producer price index (PPI), continuing a transition begun in 2011 by using basic prices rather than wholesale prices.

A second technical change in the WPI is its use of the Laspeyres framework with item-level Jevons indices and weighted aggregation. A Jevons index is a price index calculated for a specific item by taking the geometric mean of the price across its quotations or varieties, rather than the arithmetic mean used earlier. This change is technical, but will help reduce volatility in the series.

A similar improvement has been made in the way missing observations are treated. The old series largely carried forward the last observed price in the absence of fresh data. In the new series, price imputation based on movements in similar items will be used. This will reduce price stickiness in the index.