It isn’t GDP growth rates alone that have got a boost from the government’s new series of national accounts. The Central Statistics Office’s (CSO) rebased national income estimates also show lower inflation levels than previously assumed.
According to the revised series, the inflation rate based on the GDP price deflator works out to just 3.8 per cent for the current fiscal, against 6.3 per cent in 2013-14. This is way below the average 6.8 per cent inflation for April-December as per the consumer price index (CPI) and closer to the 3.4 per cent wholesale price index (WPI)-based rate. The deflator is the ratio of GDP for a particular year at current market prices to that for the same year at prices prevailing during a “base” or reference year.
The resultant implicit price deflator is seen as yielding a more reliable measure of inflation than that from the WPI or CPI. The reason: the GDP deflator considers prices of all goods and services produced in the economy. The CPI takes only a limited basket of goods and services consumed by rural or urban households. While the WPI has a wider coverage, it excludes services and reflects only prices at the producer/wholesale end. Interestingly, the GDP deflator-based inflation for 2013-14 was higher at 6.9 per cent, going by the old 2004-05 base year.
“If the new (2011-12 base year) series shows inflation for both 2013-14 and 2014-15 to be much lower, it only confirms that the disinflationary pressures in the economy are entrenched and, therefore, warranting further monetary policy easing,” a top finance ministry official told The Indian Express.
Pronab Sen, chairman of the National Statistical Commission, said that the GDP deflator is “possibly the most accurate measure of inflation”. But “it comes ex-post” on an annual or previous quarter basis, unlike the CPI and WPI data released every month. “So, it can be used for analytical and research purpose, but not really for policy decisions,” he added.
As regards the new series pointing to a lower deflator-based inflation, Sen said it has to do with the share of manufacturing in GDP going up relative to that in the old series. Inflation in manufacturing has tended to be lower than for other sectors.
According to Anubhuti Sahay, senior economist at Standard Chartered Bank, while inflation measured by the GDP deflator may be low, it is CPI inflation that will remain the anchor of RBI’s policy. “The pace of monetary easing would be determined only by the trajectory of CPI inflation,” she said. Meanwhile, the CSO will come out on Thursday with a revised series for CPI inflation. This would have 2012 as the new base year, as against 2010 in the current series.