Q21Written answer
Given the following data—
| Year | CPI of industrial workers (1982 = 100) | CPI of agricultural labourers (1986–87 = 100) | WPI (1993–94 = 100) |
|---|---|---|---|
| 1995–96 | 313 | 234 | 121.6 |
| 1996–97 | 342 | 256 | 127.2 |
| 1997–98 | 366 | 264 | 132.8 |
| 1998–99 | 414 | 293 | 140.7 |
| 1999–00 | 428 | 306 | 145.3 |
| 2000–01 | 444 | 306 | 155.7 |
| 2001–02 | 463 | 309 | 161.3 |
| 2002–03 | 482 | 319 | 166.8 |
| 2003–04 | 500 | 331 | 175.9 |
(i) Comment on the relative values of the index numbers.
(ii) Are they comparable?
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ANSWER
(i) Comment on the relative values: All three index numbers rise steadily over the period, showing a continuous increase in prices (inflation). The CPI of industrial workers is the highest throughout, rising from 313 to 500 — an increase of about 60% over the period — reflecting a sharp rise in their cost of living. The CPI of agricultural labourers rises from 234 to 331 (about 41%), a slower increase. The WPI rises from 121.6 to 175.9 (about 45%). Thus the cost of living of industrial workers rose faster than that of agricultural labourers, while wholesale prices rose moderately.
(ii) Are they comparable? No, they are not directly comparable. The three indices have different base years (1982, 1986–87 and 1993–94) and cover different baskets of goods and different categories (industrial workers, agricultural labourers, and wholesale prices in general). Because the bases and baskets differ, their absolute values cannot be compared side by side; we can only compare the trend or rate of change within each series, not the level of one against another. To compare them properly they must first be converted to a common base year.