The Journal of Income and Wealth
Year : 2003, Volume : 25, Issue : 1–2
First page : ( 43) Last page : ( 53)
Print ISSN : 0000-0000.

Joshi Ajit R., Mitra Sharmishtha

Department of Statistical Analysis and Computer Services, Reserve Bank of India, Mumbai

JEL Classification: E31

Introduction

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Methodology

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Analysis at aggregate level

Agriculture and Allied Activities

In the agricultural sector, the commodities are grouped into 10 groups viz. (i) cereals, (ii) pulses, (iii) oilseeds, (iv) sugarcane, (v) fibres, (vi) tea, coffee and tobacco, (vii) condiments and spices, (viii) fruits and vegetables, (ix) milk and (x) meat, fish and eggs. Wholesale price index for these commodities and the GDP deflator (worked out using the “value of output”) are compared at the growth rate level. It is seen from the comparison of the inflation rates based on these two price indices, that there is considerable difference in inflation rates for many commodities over the study period. In respect of cereals, pulses (to some extent), oilseeds, fibres, condiments and spices and milk, the direction and quantum of movements in inflation rates is comparable between the two series, making the graphs of the two inflation rates move close to each other. However, in terms of absolute variation, the difference between the inflation rates exceeds 2–3 percentage points on the average for these commodities (Annex 1, Charts 1(a) – 1(i)).

In respect of the remaining commodities, viz., sugarcane, tea, coffee and tobacco, fruits and vegetables, and meat, fish and eggs, the variation is far more with differing directions in movement of inflation rates for many years.

This wide variation might get cancelled out somewhat during aggregation, but at the aggregate level, i.e. at “Agriculture and Allied Activities”; the difference between inflation rates is of the order of 3 percentage points on the average.

Manufacturing

In the registered manufacturing sector, similar exercise was carried out using “Gross Value Added”. For comparing the inflation rates for different groups of the major group ‘Manufactured Products’, we have considered corresponding categories of the Registered Manufacturing sector of the economy. Inflation rates based on the 2 indices for the 12 comparable groups of the Manufactured Products/Registered Manufacturing Sector and Electricity have been presented in Table 3. Such comparison has also been presented graphically to bring out the picture more vividly.

It is observed that most of the sub-groups of the ‘Manufactured Products’ show little dissimilarities in the beginning of the observed period and almost identical values thereafter, with the two graphs colliding to a single line diagram. However, moderate differences in the groups ‘Food Products’ and ‘Textiles’ and major disturbances in the group ‘Rubber & Plastic Products’ have led to some divergences to the major group ‘Manufactured Products’ as a whole. The two inflation rates have shown widely varying pattern and values for the group ‘Electricity’ possibly due to the high adjustment for FISIM in the corresponding GDP series.

Services

For most of the service categories, the constant price estimates are worked out using respective quantum indices and these are valued at base year prices. This method is expected to give an appropriate price deflator for these sectors. As the prices of these sectors are likely to vary out of alignment with the general commodity price level, the source of divergence between GDP deflator and WPI should ideally fall in this sector. Movement of individual sector price indices and their comparison with other price indices, viz., WPI and CPI needs to be carried out so as to understand the particular sectors which are likely to be the source of divergence between overall WPI and GDP deflator based inflation rates. Inflation from the combined services covered under GDP, overall GDP, WPI and CPI_IW are presented in Table 4.

At the disaggregate level it is interesting to note that GDP deflator of services like, Public Administration, Defense, etc., Other Services and Community, Social & Personal Services track the aggregate level inflation from CPI_IW quite satisfactorily. This is probably because of the close linkage of such services to wage indexation, which again is directly determined by the CPI_IW. In other cases, inflation from GDP deflator is not conforming to any of the other two price indices. This is particularly disturbing for the financial sector where special care needs to be adopted in the context of various methodological issues. However, for the Construction sector, the comparison should ideally be made with the few relevant commodities (Iron & Steel, Cement, etc.) and not with the overall index of the WPI. In case of CPI_IW, comparison at its aggregate level is justified because of its direct relationship with labour costs.

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Concluding Remarks

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Tables

Annexure 1

Table 1. Inflation Rates Based On Gdp Deflator And Wpi For Agricultural Commodities Sub-Groups Index 1991–92 1992–93 1993–94 1994–95 1995–96 1996–97 1997–98 1998–99 1999–00 2000–01 2001–02 2002–03 2003–04 Cereals GDPD 27.97 4.75 7.37 9.38 8.63 12.74 0.91 15.03 4.10 −2.13 2.52 1.78 WPI 23.21 13.59 5.50 13.65 6.28 12.36 1.99 9.04 17.79 −2.68 −1.69 2.01 1.61 Pulses GDPD 6.87 6.95 21.70 5.80 17.12 5.08 −5.28 11.86 6.64 10.75 7.54 −5.32 WPI 9.23 3.55 19.74 22.23 10.46 12.08 −3.61 9.78 3.77 8.07 5.40 −4.60 −1.82 Oilseeds GDPD 12.24 −8.00 10.93 8.32 5.77 8.26 −1.67 8.37 −3.27 −0.78 0.10 20.99 WPI 20.39 −1.89 −1.36 18.46 8.58 1.55 −1.75 15.69 −10.14 −3.23 6.58 16.40 10.79 Sugars GDPD 3.86 25.67 23.75 5.61 −1.35 6.81 13.96 −0.16 1.06 9.19 2.57 7.74 Sugarcane WPI 6.35 13.22 21.46 10.53 6.94 11.47 7.77 6.06 6.71 7.68 8.26 7.74 8.68 Fibres GDPD 24.97 −17.81 46.48 30.42 −4.71 −2.74 8.35 −1.28 −0.53 1.76 2.98 −5.81 WPI 38.85 −10.53 16.00 50.00 6.85 −14.13 9.71 7.12 −10.41 8.13 −3.40 −4.93 23.08 Indigo, dyes & tanning material GDPD −16.67 −14.29 16.67 22.22 9.09 −4.55 −4.59 16.67 0.84 −3.75 4.55 −1.79 Tanning materials WPI 26.04 23.38 7.55 2.53 0.49 36.22 9.87 0.00 0.00 0.00 9.27 43.64 −0.75 Tea, Coffee, Tobacco GDPD 5.17 6.40 10.65 −1.89 32.68 4.66 22.48 0.30 3.66 7.72 1.11 2.82 Other Food Articles WPI −9.05 10.21 12.29 11.63 15.44 −1.36 39.37 −8.27 −7.64 −14.98 −12.27 −2.74 −3.33 Condiments & Spices GDPD 50.72 −1.32 −3.85 20.80 11.83 6.33 6.10 11.79 18.88 −15.36 −1.44 2.82 WPI 46.80 23.10 −13.01 26.22 21.55 15.08 0.19 24.50 2.81 −10.53 −7.14 3.13 5.72 Fruits & Vegetables GDPD 16.52 6.70 8.85 7.89 15.77 2.90 28.97 1.44 2.79 0.34 17.22 −0.32 WPI 23.92 7.78 3.39 8.04 14.36 20.50 −4.05 29.76 −16.66 3.79 17.83 0.67 4.43 Milk GDPD 18.62 9.77 7.58 9.78 9.64 8.09 7.15 6.58 4.83 4.42 1.53 3.31 WPI 13.01 12.01 5.67 10.33 3.55 4.75 4.90 8.36 8.51 10.59 1.77 3.37 2.00 Meat & Eggs GDPD 13.31 10.09 13.66 8.64 9.57 13.17 8.00 3.05 6.42 2.89 0.09 −6.76 Eggs, Meat & Fish WPI 14.57 16.49 12.79 16.13 7.78 16.34 10.91 4.91 2.72 6.68 2.70 1.47 −3.28   Charts showing inflation rates for WPI and GDP Deflator for Agricultural Commodities

Annexure 2

Table 2. Inflation rates based on GDP Deflator and WPI for Manufacturing Sector Sub-Groups Index 1991–92 1992–93 1993–94 1994–95 1995–96 1996–97 1997–98 1998–99 1999–00 2000–01 2001–02 2002–03 2003–04 Food Products WPI 13.54 8.52 10.22 9.64 3.26 6.06 7.77 11.20 1.05 −3.72 −0.18 5.25 8.87 GDPD 13.28 7.02 7.85 11.30 3.68 5.73 9.25 17.49 1.27 −1.90 0.45 4.54 Beverages Tobacco & Tobacco Products WPI 9.71 10.55 4.38 11.58 8.25 5.34 11.52 10.80 4.43 3.27 7.80 5.41 0.66 GDPD 9.76 10.43 4.39 18.30 8.31 5.29 11.54 10.75 4.47 3.28 7.77 5.41 Textiles WPI 10.01 6.56 9.58 16.76 9.48 −8.29 −2.71 −0.90 0.50 4.24 −0.47 2.39 7.74 GDPD 8.70 8.60 8.45 13.23 13.07 −3.80 −1.72 6.19 −1.23 1.79 −0.36 7.55 Wood & Wood Products WPI 1.56 96.90 19.72 10.52 7.18 2.72 25.34 29.99 −2.56 −7.16 −3.10 2.68 0.18 GDPD 1.41 96.91 19.92 10.98 7.26 2.47 25.37 30.03 −2.42 −7.26 −2.95 2.61 Paper & Paper Products WPI 17.58 19.08 5.37 0.64 23.70 −0.18 −3.22 3.18 14.18 10.80 4.44 0.74 −0.43 GDPD 17.64 19.06 5.44 6.10 23.65 −0.14 −3.29 3.21 14.16 10.79 4.47 0.71 Leather & Leather Products WPI 4.28 −2.43 7.42 6.77 8.71 1.66 6.26 3.43 16.02 −3.39 −5.56 −7.74 12.90 GDPD 4.21 −2.49 7.50 9.68 8.66 1.70 6.27 3.39 16.06 −3.16 −5.80 −7.77 Rubber & Plastic Products WPI 3.45 9.18 2.00 5.60 15.66 0.97 0.24 −0.62 −0.09 1.52 0.47 5.19 1.77 GDPD 10.05 12.03 5.74 6.21 8.00 7.50 6.24 1.22 6.10 23.59 3.91 5.87 Chemicals & Chemical Products WPI 13.90 14.35 7.93 11.93 8.71 3.46 4.51 6.39 6.42 5.87 2.88 2.89 1.88 GDPD 13.93 14.05 7.91 16.60 8.75 3.39 4.58 6.34 6.45 5.93 2.80 2.90 Non-Metallic Mineral Products WPI 16.26 7.90 9.60 8.05 13.95 2.39 −1.84 2.50 −2.17 4.36 8.34 −0.40 3.41 GDPD 16.18 7.93 9.58 10.90 13.99 2.36 −1.85 2.53 −2.17 5.10 7.55 −0.43 Basic Metals Alloys & Metals Products WPI 6.76 9.28 7.78 8.67 11.03 4.61 3.83 1.58 1.72 3.82 0.33 3.16 15.63 GDPD 6.52 9.72 8.08 7.82 10.50 4.40 3.29 1.51 1.50 3.57 0.35 2.64 Machinery & Machine Tools WPI 15.61 10.69 3.19 10.48 5.45 3.53 −0.37 0.61 0.10 5.87 5.02 0.92 1.87 GDPD 15.71 11.55 2.61 5.86 5.99 4.26 −1.75 0.53 0.73 5.94 4.95 0.99 Transport EquipMent & Parts WPI 11.68 7.70 2.63 6.54 7.90 6.19 3.78 2.85 3.05 5.76 2.49 0.46 −0.07 GDPD 11.65 7.67 2.64 7.40 7.92 6.21 3.82 2.81 3.05 5.91 2.37 0.47   Charts showing inflation from sub-groups/sub-sectors of WPI - Manufactured Products & GDP - Registered Manufacturing Sector; WPI - Electricity & GDP - Electricity   Charts showing inflation from GDP_Services & overall inflation from WPI & CPI