Headline inflation pinches, but with a lag

Written by Anil Sasi | New Delhi | Updated: Sep 17 2014, 17:34pm hrs
InflationThe final inflation estimates could well be higher, if the trend in the previous months is anything to go by.
Even as headline inflation appears to have softened to a five-year low of 3.74 per cent in August, the final inflation estimates could well be higher, if the trend in the previous months is anything to go by.

The consistent upward revisions in the final inflation numbers by the government since January this year have led to concerns that the actual inflation estimates, which come in with a lag, could be way higher than what the provisional figures suggest.

The commerce and industry ministry, which releases the Wholesale Price Index data, has been effecting sharp upward revisions in the final figures since the beginning of this year, with the gap between the provisional and final figures hovering between 20-40 basis points (a basis point is a unit equal to one hundredth of a percentage point).

Final inflation estimates have been updated till the month of June 2014, data for which was released by the government on Monday alongside the provisional data for August.

During the latest reported month, where provisional inflation data has dipped to a record low, analysts predict that the data could be revised upwards when the final estimates come in, going by the trend so far. The government revises provisional inflation rate after receiving additional price data with a lag of around two months.

Since the provisional wholesale inflation data comes out first, it effectively emerges as the most closely followed measure of price trends in the country, while the final numbers, by virtue of being backdated, pretty much go unnoticed.

This is also being seen a factor that buttress the RBIs continued hawkish stance, which is expected to result in the central bank holding rates in the upcoming monetary policy review at the end of the month.

On the broader trend in the consistent upward revisions in the data, a ministry of statistics and programme implementation official said: When inflation is accelerating, the correction tends to be upward. This is because when data for certain products do not come in when provisional estimates are compiled, the last recorded data (for the preceding month) is used. By the time the final estimates are prepared, updated data collected from the centres is factored in, which pushes it (the final numbers) upwards.