Inflation figures are inflating further

Alarming bells are ringing loud for Reserve Bank of India (RBI). The inflation figures released last week have put the financial authority at the central bank in dilemma. For the week ending March 15, the inflation stood at 6.68%, a whooping 76 basis points increase over the previous week figure. Not only is the figure way above the target set by the RBI, but also at 13-month high.

However, what is even more intriguing and alarming for the central bank is the fact that the revised figures of inflation are even higher with average of 30 basis points above the provisional figures. For the week ending January 19, for which the latest revised figure is available, the inflation stood at 4.45%, 52 basis points higher than the provisional figure reported by government on February 1.

The inflation figures are released by the Office of the Economic Advisor (OEA) of union ministry of commerce and industry. The provisional figures of inflation are typically reported with a lag of two weeks, while the revised figures are released with a lag of eight weeks.

According to the experts, the difference is due to the fact that the information regarding the prices of basket of goods and services is not fully available at the time of segregating the provisional data.

"The provisional figures are released as per the information and prices available to the finance ministry. The first estimates are usually rough and incomplete and so provisional figures don't fully reflect the true picture. The revised figures normally have all the accurate and detailed information, which is why there is a gap between provisional and revised figures,” said D.K. Joshi, principal economist at Crisil.

However, Sebastian Morris, professor at IIM, Ahmedabad, feels that the difference between provisional and revised figures is usual and 30 basis points is normal in a scenario where information gap and errors and omissions are present.

"At this juncture, restricting the growth of credit and money growth is the only way out to stop inflation from rising and the central bank will follow that strategy only,” added Morris. The experts also opine that the methodology of calculating inflation in itself is faulty and not reliable as it incorporates wholesale prices and not the retail ones, which has the real impact on the end-users.

"Food prices have shot up worldwide and India is no exception. But the problem with inflation figure is that they don't reflect the true impact of inflation on consumers as it is based on wholesale prices,” said Pradip Shah of IndAsia Fund Advsiors Pvt Ltd.

Under license from www.3dsyndication.com

SEARCH