In the current fiscal, the wholesale price index (WPI) based inflation has been hovering at a lower level. For the week ended July 24, the WPI-based inflation was pegged at 1.19 per cent. The rise of 1.19 per cent in inflation on a point-to-point basis was lower than that of 4.78 per cent recorded during the corresponding period of the previous year.

The rate of inflation measured in terms of consumer price index for industrial works (CPI-IW) increased by 1.4 per cent during April-June 1999, much lower than the increase of 5 per cent during the first three months of 1998-99. On an average basis, the increase was of a lower order of 1 per cent as compared to 6.7 per cent during 1998-99.

According to the RBI deputy governor, the economic survey (1997-98) of the Government of India gave an official indication of the acceptable level of inflation when it stated: "As world inflation rates are currently of the order of 0-3 per cent, 4-6 per cent inflation rate could be regarded as an acceptable level for India at present."

He also quoted from Tarapore comittee on capital account convertibility which recommended a mandated rate of inflation for the three-year period 1997-98 to 1999-2000 in the average of 3-5 per cent.

"There is a growing consensus on acceptable level of the inflation-rate but this needs to be better articulated, formalised and converted in due course into a mandate from the Government to the RBI and in the process to all economic agents. This approach should have a significant impact on inflationary expectations in India," Reddy said.

According to him, the immidiate task of weights in regards to wholesale price index is being addressed by the Hashim Committee. "Similar efforts for consumer price index is under contemplation by the Government of India. The issue relating to base year, coverage and weights have to be resolved," he said.

Reddy felt that a detailed survey of the behaviour of individual commodity prices in both the wholesale price segment and retail price segment would perhaps help analyse changes in their behaviour in the past.

He said that analytical work on defining appropriate `core inflation' for India may be worth exploring. "A measure of core inflation has two distinct uses for monetary policy purposes. It formulates policy and provide policy accountability. Because of these two factors, many central banks are interested in estimating core inflation," he said.

"The different methods used to estimate core inflation give various estimates and hence it is very difficult to have a precise and unique definition which is universally acceptable. Thus, there is a need for further research on defining core inflation appropriate for India," Reddy pointed out.

He further said that while analysing inflation, there is a need to look at the asset price inflation in the context of financial market liberalisation. "In India, the asset prices are not covered in both the indices of inflation indicators despite their increasing importance in terms of one of the important channels for the transmission mechanism of monetary policy," he said.