Inflation Data on Monthly Basis

At the meeting of the Cabinet Committee on Prices chaired by Prime Minister Manmohan Singh it was decided that Wholesale Price Index (WPI) data will be release on monthly basis instead of weekly basis so that switching to monthly price data will brings India in line with global best practices as the weekly index is rapidly losing its credibility and the base of WPI has been revised from 1993-94 to 2004-05 and from November this month it will comes into effect. The move is aimed at improving the integrity of the inflation data, especially the manufacturing price data. There will be no loss of information as the government will continue to provide data on food and fuel inflation on a weekly basis, Commerce and Industry Minister Anand Sharma told reporters after the meeting. However, the Government would continue to release a weekly index for primary articles, and commodities in the fuel, power, light and lubricants group, Mr Sharma said. “The weekly index will facilitate monitoring of prices of agricultural commodities and petroleum products, which are sensitive in nature.” Just think about it, prices for more than a third of the commodities in the current basket are calculated on the basis of one to three quotations, It appear that the government is responding to arguments from the finance ministry and RBI, which insisted on collection of weekly figures that they said, helped reduce the response time for policy decisions related to politically-sensitive food and fuel prices, but, surely, this will only add to the confusion. A monthly price index of all commodities and a weekly one of primary articles plus three consumer price indices (CPI) that already exist—how will this help in better policymaking? At present, India releases the wholesale price index every week and consumer price index, where food items have greater weight age, every month. However, WPI is more closely watched as it covers a higher number of products. In recent months, the WPI and CPI have shown a wide divergence which has made policy making difficult. An expert committee on revision of the WPI series, headed by the Planning Commission Member, Mr Abhijit Sen according to the Committee’s proposal, the new 2004-05 base series will have 1,224 commodities (against the 435 items in the present WPI series). The Primary Articles and fuel index will have almost the same number of items as the present series, while there will be about 1,100 manufactured products in the proposed series. With the new series, the food and fuel category would have less representation in the index, while manufactured products, which at present have a weight of 63.75 per cent in the index, will have an increased weight of around 80 per cent in the series. Analysts and economists believe that the monthly released data would reduce gaps and enhance the quality of the data. At present, only about a fourth of the data are collected and the rest are extrapolated from the existing index. Policymakers in India too are facing a somewhat similar dilemma. Though overall GDP growth remains weak, inflation is now on the rise. Primary articles inflation registered a sharp rise, while fuel and manufacturing inflation continued to be subdued. Recently, raw material prices have also posted a sharp month-on–month (m-o-m) increase compared to a much sharper dip last year. CPI inflation is already in double digits, and WPI inflation is expected to go beyond the RBI’s tolerance limit of 5 per cent over the next few months. We reorganize WPI into three different categories - food, raw material and manufactured products. While raw material WPI captures price movements in crude items, energy and non-food primary articles, manufactured products (excluding food products) covers both intermediate and final finished goods. Our findings suggest that the key pressure point on inflation continues to be the supply shock from food articles. Food prices have remained much above their long-term trend since the middle of 2006. With rains playing a spoilsport, food inflation averaging 11 per cent in first five months of this fiscal does not come as surprise. Food price-led inflation cannot be tamed by raising interest rates.