Capital Goods Price Index (CPGI) measures the price changes of fixed capital asset that have been bought by the producers of goods and services. To determine the Capital Goods Price Index, data are collected after every three months through postal scrutiny of price quotas from different purchasers.
Different groups of physical capital assets:
- Residential Buildings: It includes the residential buildings, hostels, boarding houses etc.
- Non Residential Buildings: Shopping malls, factories, office buildings, farmhouses are grouped into this category.
- Other Constructions: It comprises the transport ways, pipelines, electrical works and other site works.
- Land Improvement: Land clearing & establishment, fencing, irrigation & land drainage,reclamation & river control fall into this sector.
- Transport Equipment and Plant: It includes all the commercial vehicles under and over a certain amount of weight.
- Plant Machinery and Equipment: Under this, many things come like glass products, furnitures, television and radio transmitters and apparatus, electric motors, computer machineries to name a few.
Interpretation of Capital Goods Price Index:
Since the disbursement on goods can be asymmetric, that's why, data of more than one year is taken. The weights of the commodities contained in this exercise are determined relatively, i.e comparing the importance of the index within each of the asset type indexes. Information about this has been collected from the statistics on external trade, manufacturing and registrations of building and vehicle.
Considerable factors of selecting the capital items:
The factors that has to be taken into account while selecting the capital items are:
- It ought to be a representative of the capital items purchased by producers and have a price history.
- It should reflect price movements which accurately shows the grouping of similar products.
- It should be available for a number of years which will reduce the certain problems at the
time of the replacement of items.
- Second hand equipment and as well as large non-recurring value items should be
omitted from the Capital Goods Price Index.
Uses of Capital Goods Price Index:
- Capital Goods Price Index measures the price stability.
- It can also be used for inflation measurement.
- Capital Goods Price Index indicates the change in costs for capital assets.