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: The latest inflation figure of 11.63% is not just high, it is higher than expected. Indeed, this higher-than-projected level is one characteristic of the current bout of inflation—there have been instances when an originally announced rate was subsequently revised upwards. It is fairly obvious now that inflation will breach 12%. The more pertinent question, however, and the one that is likely to determine electoral time-lines, is when will inflation moderate. The answer is a function of the index used. For instance, the 11.63% estimate is based on the point-to-point WPI: 85% of WPI weightage consists of basic metals, alloys, metal products, oilseeds, minerals, mineral oils and primary and manufactured food articles. For these, price increases have been driven by global factors and domestic demand, with perhaps 0.5% added due to the increase in prices of petroleum products. Barring the petroleum products price increase, none of these factors is likely to change. Instead, there is pressure on producers to increase prices because of higher input costs, including interest, wages and power. However, WPI is also point-to-point. That makes it a function of base levels and beyond December, inflation should ease somewhat.
However, citizen dissatisfaction has been more on account of food price inflation, which has a low weight in WPI. With a good kharif crop and record procurement, food price increases should taper before December, more likely by the end of September. One should also remember that Indian food price increases are relatively insulated from global price hikes. So far, the four CPI indices have been higher than WPI. This trend may well be reversed and using CPI, inflation should not be more than 7% within a space of three months. WPI is a bad measure for gauging the impact of inflation on consumers and determining policy responses. No major country uses WPI for these purposes. WPI is also outdated. Data problems don’t allow immediate rollout of the proposed producer price index (PPI). But the government may well decide to introduce a limited edition, or perhaps even switch to CPI. If nothing else, the government will present figures monthly and save itself weekly embarrassment and damage. In addition, by removing some commodities from the present list of 435, the WPI itself can be made to show an inflation rate that is 0.5% lower. CPI will do even better.
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