If falling inflation, as measured by the weekly estimate of the wholesale price index (WPI), has been a matter of puzzlement more than celebration to you, here is news you cannot use: you are not alone. Most people are unable to grasp how the inflation rate could have come down to such a cuddly figure of 3%, even as their day-to-day shopping experience suggests that the monster of inflation continues to growl and snarl. Many of these puzzled people are misled by a common misperception. They confuse falling inflation with falling prices, while all that the statisticians are only saying is that prices are not going up quite as fast as they were earlier. So all that a falling WPI rate means is that while it might have taken 10 weeks for prices to go up by 10% last year, it now takes something like 10 months for the prices to go up by the same proportion. If wholesale price were actually falling, the WPI rate would turn negative, which is rare indeed.
Several of those puzzled, however, make an altogether different kind of mistake. They take inflation statistics as something that ought to reflect the reality they see around them, while the WPI is just another index, a statistical construct that changes value depending on its constituent measureables (foodgrain, minerals, fuel and manufactured goods, for example), which may have nothing to do with the things they purchase or care about. The WPI measures wholesale prices paid by industry and traders, and is of little direct relevance to people’s shopping bills. Nor need it be wholly accurate in the literal sense of representing ?the truth?, as it were. So long as the data measurement system remains internally consistent, comparisons with the past can be made that allow economic decisions to be taken reliably.
Yet, consumers suspect that the true picture is being brushed under the carpet. The first thing they must accept is that the only price index that will satisfy their own retail observations will be one they create themselves, with the constituents reflective of exactly what they spend on. For the sake of simplicity, India does have a set of four different measures to track retail prices that affect ordinary folk. There is the Consumer Price Index of industrial workers (CPI-IW), the Consumer Price Index of Urban Non Manual Employees Index (CPI-UNME), and similar indices for agricultural labour (CPI-RL) and rural labour as a whole (CPI-RL).
Urban Indians who are part of Consumer India may find the CPI-UNME a barometer that best indicates prices of their basket of consumption. The share of food items in this index, for example, is 47%, while it is 70% for the CPI-RL. Yet, metropolitan young urban professionals (the ?yuppies? who marketers are forever chasing for their wallets packed with cash and credit cards) will find that none of these indices are representative of their consumption patterns. And with their ranks swelling fast, and the pricing of their kind of products and services determined by factors far removed from the commodity world of demand and supply, it is quite likely that a hypothetical CPI-YUP would record inflation that is ripping ahead and roaring away. Something more than twice, perhaps, of the 7.9% inflation recorded by the CPI-AL, which in itself is more than double the WPI inflation that the RBI would have you congratulate it for.