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The wholesale price index for the week ended September 1 rose 0.4% over its preceding week’s level to an all-time high of 214.4 but for the same week, the inflation rate, at 3.52%, plunged to a 17-month low.

Over a span of just seven days, the group “primary articles” had hardened by 1.3% and within this group, the subgroup that has most relevance for the masses-food article -, hardened by 2%.

Yet, the price situation has never been more sanguine in recent times, if we go by the latest inflation figure which has dropped to an extent certainly not envisaged by the RBI and perhaps, by the officialdom.

The why and whereof of this development can be easily explained by dwelling on what had happened during the corresponding week of last year.

During the week ended September 2, 2006, the WPI rose by 0.6% to 207.1 (revised). On this high base, the year-on-year inflation rate is calculated by the official machinery and this worked out to 3.52%.

Instead, if we use the provisional index for the same week— the index was 206.0 — then the inflation rate for September 1, 2007 would, in fact, be higher at 4.1%. This measure, rather than what the official sources claim, portrays more accurately the price scenario at present.

Of course, even an inflation rate of around 4% is quite an achievement, though perhaps the choice of the WPIfor gauging inflation is not quite apt and is unique to our country.

The government is in error in comparing the latest provisional WPI with the revised index of the preceding year to work out the inflation rate.

This is because, provisional figures are prone to revision some eight weeks from the initial date to which they pertain. Moreover, the revised index is generally higher than the provisional one.

For example, thus far during 2007-08, provisional and revised series are available for the first 14 weeks of the fiscal year, that is, till July 7, and in 13 out the 14 weeks, the revised data are higher than the preliminary numbers.

In effect, this means, when the revised figures - the denominator in computing the inflation rate - are used for arriving at the latest inflation rate, their high base tends to depress the true extent of the price spurt. On the other hand, recourse to previous year’s provisional WPI has much to commend itself.

For one, it is statistically valid since the latest index is also provisional. For another, there is uniformity in the WPI data for the current and the earlier period.

Also, the inflation rate using the provisional data for both the periods reflects more faithfully the behaviour of prices now and a year ago.

Empirically too, when the inflation rate is derived by using the provisional WPI for the latest and year-ago periods, we find that the inflation rate is higher than what is based on the official version - that is, provisional WPI for the current year and the revised index 12 months ago.

Thus, for the week ended September 1, if we go by the government methodology, the inflation rate was a mere 3.5%.

But if we adopt the provisional over provisional calculation, the inflation rate is of the order of 4.1%.In fact, for the 22 weeks of the current fiscal ending September 1, the alternative method - and, the correct method, it may be added - yields an inflation rate higher than what is officially published on as many as 20 weeks and in the remaining two weeks, the inflation numbers were identical. That is to say, the government approach to measuring inflation rate underestimates the true extent of the price rise.

The choice of wholesale index to work our inflation rate is neither wise nor valid. But, even here, what matters to the common man is the price he pays for his basket of daily necessities.

That the primary articles group has risen by 8.6% as of September 1 over a year ago and within this group, food articles by 7.5% is a matter of concern to him. The fuel index too has declined now fractionally but that is because of the official policy of artificially keeping a lid on their prices.

The fact that the overall inflation rate was down to 3.5% is of cold comfort to the common man as he has to pay more weekly for his essentials. The extent of the spurt in consumption goods is not reflected in the overall WPI because of the low weightage assigned to primary commodities in this index.