The Centre has acted with unusual speed in effecting the switchover to a monthly measure of inflation with weekly monitoring of price movements in primary articles and commodities that comprise the fuel group. One wonders why.
Perhaps, it should have waited to jettison the decades-old practice till the new series of wholesale price index is ready for publication in a matter of months so that the synchronisation of the twin moves would have at least the merit of right timing.
Is the new arrangement satisfactory? We now have the trends in the indices for primary articles and fuel items for the last two weeks of October and their variations over the week, end-March and a year ago. Food articles, we are able to infer, have become dearer by 0.58% during the week ended October 31, by 14.42% over the last week of March and by 13.68% over the same week of 2008-09.
Is this rate of inflation for food articles — high though it is — credible?
What about the price behaviour in such items of mass consumption as sugar and khandsari, edible oils, grain mill products like maida and atta, bakery items, bread and biscuits. Surely, many of these commodities are volatile and do change weekly, if not daily. True, they are classified under manufactures and as such, do not come under the scanner each week.
In other words, food price inflation, as gleaned from the WPI for the final week of October, is not the true reflection of the price situation during the week under scrutiny. At least in respect of these selected goods that fall under manufactures, their inclusion would be appropriate for a more precise measurement of inflation.
Consider the issue from another point of view. In regard to fuels, there has been a fall to the extent of 1.71% during the week under review in relation to the year ago, though over end-March 2009, the fuel index is up by 7.23%. Is this reflective of the underlying realities? Of the total weight of 14.23% assigned to fuels as a group, a lion’s share is claimed by mineral oils — 6.99% — and electricity — 5.48%.
Among the fuels, again, four items, LPG, petrol, kerosene and high speed diesel, with a combined weight of 5.44%, are subject to price controls; in regard to power, tariffs do change but not at frequent intervals.
So, effectively, the inflation rate for fuel group is confined to other items such as coal and petro-goods outside the purview of price controls. So, the weekly reporting of inflation for this group is an exercise in superfluity as government has a say on most of the key items and because they remain static for long spells of time, they do impact on the overall movement of the index for WPI when revisions are made in their prices.
If, in the case of manufactures, non-availability of prices for a large number of commodities justifies the exclusion of this group from weekly monitoring, in measuring fuel price inflation, the inclusion of goods subject to price control introduces an element of bias. Here too, a monthly inflation rate as in manufactures may suffice in the Indian context. We have already alluded to the deficiency inherent in the index for primary articles as food articles do not include food products which fall under the category of manufactures.
But, the best course would be to persist with the current practice of weekly inflation rates, unless we adopt the month as the basis of measuring of inflation and manage to issue the index with a lag of two weeks.
While the use of wholesale index may not be theoretically appropriate — and considering the difficulty in compiling an all-India retail price index — there is merit in the deeply entrenched practice.
In the meanwhile, the price data for the week ended October 31 indicates that in regard to food articles, inflation is galloping. Cereals are up by 7% over end-March and by 14% over the year and pulses by 22% each and potatoes by a staggering 100%.
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