India’s annual inflation rate, comparing the Wholesale Price Index, or WPI, of the current year with that in the same week a year ago, declined to 12.1% for the week to 30 August. It was 12.34% and 12.4% in the two weeks previous to that.The note, predicts that inflation would remain in double digits till February. While the Reserve Bank of India (RBI) expects inflation to come down to around 7% by the end of March next year, the note suggests that it may decline only to 7.6% by that time.
Economists agreed that the declining trend in inflation might reverse sooner than later.Inflation crossed into double digits after the government raised fuel prices in the first week of June to reduce losses of state-owned oil marketers, who were selling fuel much below cost. After peaking at $142 a barrel on 3 July, the price of India’s crude basket has now fallen below $100.
On the issue of whether headline inflation reported by the government is overstated, the government note says the provisional inflation numbers are understated by more than half a percentage point. Revisions in provisional figures started to widen since January due to late reporting of increase in prices of minerals and mineral products. Such upward revisions picked in March.
The note further goes on to suggest that to break the trend of current unidirectional and upward nature of revisions, provisional WPI numbers should be compared with provisional WPI of the previous year.At present, provisional figures of WPI is compared with final WPI numbers of the last year. Thus, the revised inflation rate tends to be higher than the provisional rate.