Something curious is happening with inflation figures. For the past few months, the final wholesale price index (WPI) data has often been 35 basis points more than the initial inflation data.
This means prices have not softened as dramatically as has been projected by the government in its weekly provisional figures. Thus, when the government took credit for having tamed inflation to below 6% in late April at 5.66%, the final figures were way above, at 6.01%.
Since any inflation means prices are rising, the final figures show that prices are climbing faster than captured in provisional figures. The interesting aspect of the difference is that the provisional estimates for this year are consistently lower than the final figures, released with a lag of two months.
Provisional estimates are based on incomplete data and, therefore, are typically lower than final estimates, says Shankar Acharya, honorary professor at Icrier and former chief economic advisor in the finance ministry. ?The time lag between provisional and final estimates results in the difference,? says S Narayan, former secretary to the Prime Minister.
The inflation data published every week on Friday is a crucial element in fiscal and monetary policy. While rising inflation may induce the government to remove supply-side constraints or suppress aggregate demand on the fiscal front, on the monetary front, it may result in RBI tinkering with key interest rates or the cash reserve ratio.
Government officials say the difference is normal since provisional inflation data come from enumerators across the country.
For the week ended August 18, inflation fell below the 4% level (to 3.94%) for the first time in 15 months due to monetary and fiscal tightening measures. Inflation is also ?artificially depressed? since the government has not revised oil prices lately, notes the Prime Minister?s Economic Advisory Council (EAC) member Saumitra Chaudhuri, although oil prices have touched $76 a barrel on the international market.