The Reserve Bank of India on Tuesday mooted a producer price index (PPI) that would be able to measure inflation more accurately.
According to Reserve Bank of India Governor D. Subbarao, the present ways of measuring inflation do not take into account cost escalations of services.
“In its present structure, the wholesale price index does not capture the price movement of services,” Subbarao said at the sixth Annual Statistics Day conference here.
"It is a hybrid of consumer and producer price quotes.”
Subbarao said the PPI will capture price of important commodities from the retail markets and not at the production level.
"In contrast to CPI (consumer price index), PPI measures price changes from the perspective of the seller. Sellers' and purchasers' prices differ due to government subsidies, sales and excise taxes, and distribution costs," he said.
"For these reasons, it is, therefore, desirable that we move towards developing a PPI that measures the average change over time in the sale prices of domestic goods and services."
Currently, the RBI uses several methods, including wholesale price index and the consumer price index, to gauge inflation.