The extent to which the rise in the price of a product or service affects your family budget depends on two things—the level of price rise and the share of that product or service in the family’s consumption basket. Inflation indices—like the wholesale price index (WPI)—assume that every family consumes each product in the same proportion as its weightage in the index. To find out the true impact of inflation, you need to associate it with your own consumption basket. In these two pages, we tell you how:
| WPI figures | Your numbers* | ||||
Products | % Share in WPI | Inflation rate (%) | % Share in inflation | % Share in your consumption | % Share in your inflation |
| Cereals | 4.41 | 7.31 | 2.82 | -- | -- |
| Vegetables & fruits | 2.92 | 5.83 | 1.49 | -- | -- |
| Milk | 4.37 | 9.17 | 3.51 | -- | -- |
| Eggs, meat & fish | 2.21 | 3.74 | 0.72 | -- | -- |
| Fuel | 6.98 | 25.75 | 15.74 | -- | -- |
| Electricity | 5.48 | 1.39 | 0.67 | -- | -- |
| Cotton textiles | 4.21 | 1.37 | 0.51 | -- | -- |
| Paper & paper products | 2.04 | 3.42 | 0.61 | -- | -- |
| Leather & leather products | 1.02 | 2.19 | 0.20 | -- | -- |
| Tyres & tubes | 1.29 | 8.66 | 0.98 | -- | -- |
| Paints, varnishes & lacquers | 0.496 | 13.44 | 0.58 | -- | -- |
| Perfumes, cosmetics, toileteries | 0.98 | 8.47 | 0.73 | -- | -- |
| Metal products | 0.67 | 2.34 | 0.14 | -- | -- |
| Electrical apparatus & appliances | 1.82 | -1.06 | -0.17 | -- | -- |
| Processed foods | 11.54 | 14.10 | 14.25 | -- | -- |
| All commodities | 100 | 11.42 | 100 | -- | -- |
| * For formula and the explanation for calculating your share in inflation, turn overleaf Inflation data is wholesale price index for week ending June 14, 2008; only select items of the index shown in the table | |||||
1. Estimate the percentage share of each of the 15 categories (listed in the table on the previous page) in your monthly consumption basket and fill these figures in the first blank column
2. Multiply each of these figures with the latest inflation rate of that product given in the table
3. The formula for calculating the contribution of that product’s price in your inflation is:
% share of product in your consumption basket x current inflation rate of the product/Overall rate of inflation
In the table overleaf, the weightage of fruits and vegetables in the WPI is 2.92% and their prices rose by 5.83%. So the weighted contribution of this product category in WPI for the week ending June 14 was:
2.92 X 5.83/11.42 = 1.49
2.92% is the weightage assigned by the government to fruits and vegetables in the average consumption basket. Suppose your family spends 5% of its monthly expenses on fruits and vegetables, then the weighted contribution of this product category in your inflation will be 2.55%
• Use the latest available figures of inflation rate, preferably the consumer price inflation rate for each product or service
• The table used here shows WPI inflation because detailed break-up of the CPI-IW or the CPI-UNME—the two measures of consumer prices—isn’t currently available
• These two consumer price indices are being merged to create a new CPI-Urban, the details of which will be available on msopi.nic.in
• The weightages (shares) used by the government in the construction of price indices are based on consumer expenditure surveys conducted in 1983
• Since then (25 years), the consumption pattern of Indians has changed dramatically
• This underscores the importance of using your own weightages in arriving at a more relevant measure of inflation for your family
Number of items included in the consumption basket of different price indices
• 435 WPI (Wholesale price index)
• CPI-UNME (Consumer price index for urban non-manual labour)
• 120-160 CPI-IW (Consumer price index for industrial workers)
• 260 CPI -AL & RL Consumer price indices for agriculture and rural labour
