Finally, on 21 February, we will get a real inflation index

Which way is inflation headed? Down, you may say, pointing to Wholesale Price Index (WPI) for January 2012, which fell to 6.55 percent in January.

Well, a better answer would be: we don't know yet.

The venerable WPI is not a measure of how inflation is affecting us, even though the Reserve Bank uses it as a guide to see whether it should be cutting rates or sitting on its hands.

More importantly, for an economy where 60 percent of GDP comes from services, WPI simply ignores services inflation.

21 February is D-Day. On this day, we will get the first annual inflation numbers from a new Consumer Price Index that includes services as well. The new CPI, with 2010 as base, has been around for a year, but since there were no previous year's figures to compare this year's numbers with, we have not had a way of measuring annual inflation.

 Finally, on 21 February, we will get a real inflation index

The new index s gives a near 50 percent weight (49.71 percent) to food, 9.49 percent for fuel, 4.73 to clothing, 9.77 percent to housing and 26.31 percent to miscellaneous items.Reuters

The CPI numbers for January 2012 (a combined one for urban and rural areas) will, however, have comparable figures for the previous year, and hence we will get the first taste of how inflation bites us as consumers.

The new index still gives a near 50 percent weight (49.71 percent) to food, 9.49 percent for fuel, 4.73 to clothing, 9.77 percent to housing and 26.31 percent to miscellaneous items (For full details, see this).

There is an urban CPI and a rural one. Not unexpectedly, food bills have a lower share in urban areas and housing more. But don't be too surprised if even the new CPI underwhelms. But it is certainly more real than the WPI numbers that we have been bandying about so far.

Remember: depending on how you spend your money, only you can make a realistic CPI for yourself.

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Updated Date: Dec 20, 2014 08:33:47 IST