Inflation Indexes
Inflation is a sustained increase in the general prices of goods and services. Increasing inflation erodes the purchasing power of money.
Wholesale Price Index (WPI)
The WPI indicates the movement in prices at the wholesale level. It captures the price increase or decreases when they are sold between organizations as opposed to actual consumers. WPI is an easy and convenient method to calculate inflation. However, the inflation measured here is at an institutional level and does not necessarily capture the inflation experienced by the consumer.
Consumer Price Index (CPI)
The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living; the CPI is one of the most frequently used statistics for identifying periods of inflation or deflation.
The computation of CPI is quite rigorous and detailed. It is one of the most critical metrics for studying the economy. A national statistical agency called the Ministry of Statistics and Programme Implementation (MOSPI) publishes the CPI numbers around the 2ndweek of every month.
Index of Industrial Production (IIP)
The Index of Industrial Production (IIP) is a short term indicator of how the industrial sector in the country is progressing. The data is released every month (along with inflation data) by the Ministry of Statistics and Programme Implementation (MOSPI). As the name suggests, the IIP measures the production in the Indian industrial sectors keeping a fixed reference point. As of today, India uses the reference point of 2004-05. The reference point is also called the base year.
Roughly about 15 different industries submit their production data to the ministry, which collates the data and releases it as an index number. If the IIP is increasing it indicates a vibrant industrial environment (as the production is going up) and hence a positive sign for the economy and markets. A decreasing IIP indicates a sluggish production environment, hence a negative sign for the economy and markets.
To sum up, an upswing in industrial production is good for the economy and a downswing rings an alarm. As India is getting more industrialized, the relative importance of the Index of Industrial Production is increasing.
A lower IIP number puts pressure on the RBI to lower the interest rates.
Purchasing Managers Index (PMI)
The Purchasing managers' index (PMI) is an economic indicator that tries to capture the business activity across the manufacturing and service sectors in the country. This is a survey-based indicator where the respondents -- usually the purchasing managers indicate their change in business perception with respect to the previous month. A separate survey is conducted for the service and the manufacturing sectors. The data from the survey are consolidated on a single index. Typical areas covered in the survey include factors such as new orders, output, business expectations and employment amongst others.
The PMI number usually oscillates around 50. A reading above 50 indicates expansion and below 50 indicates a contraction in the economy. And reading at 50 indicates no change in the economy.