Measuring Inflation in India

This article attempts to describe the process of calculating Inflation in India and tries to identify the anomalies in the process.

Inflation is generally calculated based on price indices.A price index is a basket of items with weightage for each item.
We have 2 price indices:
Wholesale Price Index (WPI): Based on whole sale (in some cases Producer's Price) of commodities. This data is available on a weekly basis released by the office of economic advisor to government of India. This department comes under the Ministry of commerce and Industry. http://eaindustry.nic.in/
Consumer Price Index (CPI): Based on the retail prices of commodities. This data is available on a monthly basis released by the Central Statistical Organisation. The department comes under Ministry of Statistics & Programme Implementation. http://mospi.nic.in/

In India, the Inflation is calculated based on WPI. I feel this approach has the following fundemental flaws.
Apples with Kangaroos
Currrently, the WPI has a base of 1993-94=100 where as the CPI has the base of 1984 - 85 = 100. I dont think they have the common basket of items for the calculation. If we try to compare the WPI with CPI then we will not just be comparing apples with oranges, perhaps we will be comparing apples with Kangaroos. i.e. two entirely differnt things.
(I think the term Kangaroo might better represent the rate of the rapid raise in cusumer prices recently :-))

Responsibility of calculation & Frequency
If both the indices (WPI & CPI) are calculated by the same organization then atleast the approach will be consistent. Both the indices should be available at the same frequency. currently, one is weekly and the other is monthly. In my opinion, monthly frequency for both should be sufficient. After all, most of us buy groceries for our home on a monthly basis.

The final price matters the most
1. Each commodity in the index might be sold to the end customer after going through a series of middle layers before reaching the end customber and with varying profit margins at each layer.
2. When the Wholesale price( or the Producer Price) of a commodity increases the profit margin changes doe not get cascaded uniformly. i.e. each layer will increase the profit margin differently and usually the margins increase towards the end of the chain.
3. The final consumer price can differ due to government subsidies, sales and excise taxes, and distribution costs.

Assuming that the WPI & CPI are comparable (currently they are not), if we try to plot them on a single graph as overlays then the gap between them will never be uniform in a given resonable period of time. What i am trying to say is that WPI does not properly represent (i.e no uniform correlation to) the price paid by the consumer.

I think inflation is meant to measure the additional burden to the consumer. If it fails to do that then it defeats the whole purpose of the exercise.

The inflation number for last week was around 6%. I would be happy, if our Finance minister could name a single commodity whose end price increased only by 6% the past one year.

I think the reality is much worse that what is being presented. I think we are having Real annual inflation of atleast 10% - annualized for the past 4 years. If we include housing cost inflation rate will be much higher. This will be (and should be) an issue at the upcoming elections.