The decision of the Cabinet Committee on Economic Affairs to change the periodicity of releasing the inflation data has been implemented from this month. The Wholesale Price Index (WPI)-based inflation figures are made available monthly, instead of weekly. However, the data on the prices of primary articles and commodities are to be released every week. It might be too early to evaluate the new arrangement fully but the first set of data does provide for greater transparency in one area of great common interest. The official agencies found it very difficult to reconcile the very low official WPI figures released at weekly intervals with the soaring prices of food and articles of mass consumption. The explanation that this is a statistical aberration arising out of the base effect — that the figures represent the price trends over the corresponding period last year — has not allayed the widespread scepticism over official statistics. The release of the weekly figures on November 5 showing inflation in the wholesale prices of primary articles at 8.94 per cent and food items up by 13.94 per cent has given a measure of credibility to the government statistics. For policy makers too there has been a further confirmation that the present rise in prices is driven largely by supply side factors that may not be amenable to standard monetary responses such as a hike in interest rate.
The decision to switch to a monthly release of WPI data is clearly prompted by a desire to move towards the international practice of relying on a representative consumer price index for policy purposes. Secondly, it is more practical to capture the changes in the prices of manufactured goods over a month than over a week. Thirdly, the weekly release leads to volatility in the financial markets. However, while the RBI has for long argued for developing a harmonious inflation index, the weekly release of the WPI index, in vogue since 1942, has had certain merits. It could give a true picture of the economy at short intervals, a significant pointer in a situation where several lead indicators such as unemployment rate and capacity utilisation are absent. It should be clear in a few months whether the new system would be of greater help in guiding policy, market sentiment, and public perception. If it is not, the government needs to be open to re-launching improved weekly WPI figures.
