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09 20 2015 | by Victor Xing | Economics

What is the difference between India’s WPI and CPI, and why does it matter to Reserve Bank of India policymakers?

Reserve Bank of India policymakers’ focus on WPI is part of their reaction functions on changing inflation outlooks.  This is similar to U.S. policy makers focusing on PCE and CPI, and ECB focuses on HICP.  WPI covers prices of goods that are brought by companies at a wholesale level.  It is dominated by manufactured goods and it does not count services, which accounts for 50 to 60% of India’s economy.

CPI includes both goods and services.

The nearly 8.6% gap between WPI and CPI is telling policy makers of a similar picture (as in the U.S.) – goods inflation is lagging while services inflation is still hovering around trend growth.  It is another sign of the global commodity gloom in recent months (which has stronger impact on goods inflation)

Next article09 19 2015 | by Victor Xing | Central Banks

Can the Federal Reserve effectively drain liquidity and push up interest rates?