Set up index to monitor services inflation: Par panel to government

The inflation data currently fails to capture the ground reality, a Parliamentary panel has said, asking the government to come up with a separate price index for the services sector so as to reflect the rising costs in areas such as healthcare and education.

Although services account for around 60% of the country's economy, they are neither captured fully by the Wholesale Price Index (WPI) based inflation nor the Consumer Price Index (CPI), which reflects the rate of price rise at retail level.

The standing Committee on Finance, headed by Congress leader Veerappa Moily, has said that accurate data on services inflation is crucial for understanding relative price movements as also inter-sectoral terms of trade.

Besides, it observed that entertainment, transportation and the like are mostly privatised, and costs may be rising "disproportionately higher" than what is being captured in the CPI or retail inflation.

The panel said that sectoral regulators need better data on prices, production and quality of services to act in the consumer interest.

"Accurate data on services inflation is crucial for understanding relative price movements, particularly since the services sector accounts for over half the GDP," it said in its report tabled in Parliament on Friday.

"The Committee would, therefore, recommend a separate and distinct index namely, Business Service Price Index, which will accurately factor in and reflect the rising costs of different services in the economy, enabling the government to tailor their policy responses accordingly," it added.

The Reserve Bank, it further said, has shifted its focus from wholesale prices to retail inflation while determining its monetary policy because WPI did not include services in its basket.

However, the rising cost of education, healthcare, entertainment and transportation do not get fully reflected even in CPI, it added.

As per government data, retail inflation rose 3.65% in February, year-on-year, as food inflation quickened. The rates at the wholesale level also soared to 39-month high of 6.55%.