Service sector indices to be included in new inflation index

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The government is planning to launch a new inflation index that would adequately capture the growing weight of services. Officials said a services price index (SPI) was being prepared that would be ultimately merged with the Wholesale Price Index (WPI) to make the latter more comprehensive. WPI captures data for 435 commodities but so far services have not been accounted for, despite the services sector accounting for over 55% of the country income or gross domestic product.

The index, which is in the process of being formulated, will take into account the current baskets of goods and services and hence would more accurately measure inflation, finance minister P Chidambaram had told Parliament on March 14.

“The index that is being used to measure inflation has been there for the last 10-15 years,” Chidambaram had said. According to sources, the commerce and industry ministry, which also brings out the WPI, is preparing separate indices for 10 service sectors—air transport, ports, railways, road transport, banking and insurance, telecom, postal services, and business and trade services. These 10 indices shall be combined to arrive at the final SPI, which will then be merged with the WPI. Rising prices are worrying the government as the latest inflation rate has touched 5.92%, much higher than the Reserve Bank of India’s tolerance zone.

The central bank last year called for a comprehensive price index since the increasing importance of services in the consumption basket was making the WPI—the main measure of inflation—less representative.