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India needs to change the base year for its wholesale price index (WPI) to a more recent year on account of fast changing nature of the economy, the Mid-Year Economic Analysis report has suggested.
A reason for the variation between the wholesale price index (WPI) and the Consumer Price Index (CPI)-based inflation was that the base years used in the two indices were different.
While CPI uses the base year 2012, WPI continues to be based on 2004-05, the report highlighted. There has been a significant divergence between CPI and WPI in the last one year.
While WPI inflation has remained in the negative territory since November 2014, the CPI inflation averaged 4.6 per cent during the same period.
The gap between the two indices was as high as 9 percentage points in September 2015 compared to a low 3-percentage-points gap in October 2014, the analysis said.
The variation between WPI and CPI inflation is primarily on account of differences in the weighting pattern in the indices. The weight of total food items in WPI is 24.3 per cent as compared to 45.9 per cent in CPI (food and beverages).
The weakness in global commodity and fuel prices during the last one-and-half years has impacted WPI inflation to a greater extent in non-food manufactured products (weight: 55 per cent) which are tradeables and hence follow global trends and fuel and power (weight: 15 per cent).
Non-food manufactured products and fuel and power account for the bulk of the WPI-basket.
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