India?s main inflation measure?the WPI?has fallen for the eighth straight week. But, as is being increasingly noted, food prices have kept rising. There is also the question now whether monetary policy should be tightened sooner than later. This question is posed in abstract usually, without looking at the details of current food-price inflation. A report in this newspaper yesterday gave some details. Fruit & vegetable supplies to many major wholesale markets, Delhi and Bangalore for example, have sharply come down. Also, the trend rising prices started in 2004. What is happening? A part, local supply that goes for urorganised retail outlets, has been commandeered by organised retail.This is not the whole explanation, but it is enough for opposers of organised retail to raise a toast. They will be wrong, of course. The real point is this: if a full-scale retail revolution had really been allowed and many more outlets had mushroomed across the country, if we had seen greater investment in supply-chain bottlenecks, including an adequate cold storage network, if a national market for vegetables, for example, had been created, supply would have been more, retail prices would have been lower and farmers? price realisation would have been higher. As should also be abundantly clear, this kind of price rise is indifferent to a tighter monetary policy.
Maybe, better inflation measurement will lead to better policy. A new WPI series is supposed to be out in October. It is expected that the base of the series will be revised from 1993-94 to 2004-05, and the weight of primary articles will be decreased in favour of manufactured products. Certainly, India?s data series for inflation is in urgent need of reform. RBI governor Duvvuri Subbarao asked last week, which inflation index the central bank should target when faced with five?one wholesale price index and four consumer price
indices. Technical efforts are on to reduce the number of consumer price indices but, even that, Subbarao said,?Will not give us a single representative inflation rate for an emerging market economy with market imperfections, diverse geography and 1.1 billion people.? The RBI governor is right. There?s plenty of work to do on better inflation measurement, including using seasonally adjusted data and using quarter-to-quarter and/or month-to-month changes instead of year-on-year ones.
