Issues relating to Consumer Price Index (CPI)
Some of the issues relating to Consumer Price Index (CPI)which have been in vogue for quite some time have been discussed in the following points in order to have a good glimpse of the actual impact of CPI to the consumers in India.
(1) 90-95% of the index (CPI) is not affected by interest rates as the amount spent on household is not affected by the rate changes. This includes food products (covering 48% in index), housing or fuel expenses. These are fixed cost and had to be spent irrespective of the rate of inflation.
(2) Concept of CPI does not make sense to the household. A 2% CPI does not seem convincing to a housewife who believes that prices of most of the commodities are on the higher side than that reflected by CPI. So, it is frustrating for the consumer who after every fall in rate of inflation finds that actual prices are on the much higher side.
For example, prices of tomatoes suddenly increase from ` 30 per kg. to` 80 per kg. Similarly, the prices of Tur Dal increases from ` 40 per kg. to ` 200 per kg in a very short span of time. However, prices came down slowly and now it is ` 80 per kg. So, prices increases at a very fast rate but came down after taking a lot of time and that too, the reduced price is generally at a much higher level than the previous one, as explained in the previous sentence with the help of an example.
(3) Lastly, a general view is that HRA allowance paid to Central Government employees would tend to raise inflation. However, if the government employee is residing in a government accommodation, HRA is automatically deducted form the pay slip of an employee. On the other hand, if employee is not staying in a government accommodation the amount in the pay slip will goes up. Therefore, increase in HRA may not translate into higher cost of living or higher retail demand.
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