Instead of weekly data on wholesale price index (WPI) inflation, the government intends to start releasing figures every month. This may come as relief to all those who have suffered closely sequenced shudders over the past two months, as WPI inflation scaled new week-to-week peaks. The government, however, would not like this change to be seen as an escapist measure, designed to paper over bad news. Most of the developed world follows monthly reports, which are thought to be less prone to momentary spikes, more actionable and no less statistically valid as a price stability gauge. India?s official WPI, in any case, was due for an overhaul since it was in weak synchrony with the actual experience of rising prices on the ground. As an index, the WPI operates on a data set of prices of assorted items, many of which are obsolete products or irrelevant to modern life now. The revised index, formulated by an expert committee, will take into account prices of 980 items, as opposed to 435 now, many of the new inclusions being manufactured products of wide purchase. The base year prices, which reset the index to ?100? for further increases to be tracked thereupon, will be from a 2004-05 dataset. Those who demand weekly price data, however, need not be disappointed. Actual prices of commodities will be released every week.
What are we to make of the changes? First of all, the change in index composition was long overdue. So that?s excellent. While sticking to old indices makes comparisons over longer timeframes easier, a rapidly changing country does need new tools of measurement that capture the scenario better. The new index will offer a better snapshot of actual prices, though in the final reckoning, any statistical construct is no more than an estimate, as good or bad as the inputs. As for the shift towards monthly reports, it is likely to sandpaper one of the failings of the weekly system. Being a point-to-point comparison, with the inflation figure representing the increase in the index over the number recorded in the corresponding week one year earlier, it was subject to volatility induced by data-spikes because of the smaller timeframe. Aptly formulated monthly figures, like a graph made by a four-week moving average, will be smoother and, therefore, less alarmist.