<p>Subbarao also said the headline inflation index based on the wholesale prices was also not a true reflection of the impact of price rise on the common people. <br /><br />“The use of wholesale price index (WPI) as the headline inflation index is flawed as it does not capture the final goods prices that consumers actually experience in the market,” said he while delivering an inaugural address at the Statistics Day Conference of RBI.<br /><br />RBI should be guided more by the consumer price index (CPI) which more accurately reflects demand pressures because it is demand pressures that monetary policy action can influence, according to him. It may be noted that RBI had raised interest rates 10 times since March 2010 to control inflation that has consistently outrun its forecasts. <br /><br />“Each time when we have to make an assessment of inflation situation, we are left to double guess how the provisional numbers may be revised upwards,” said he in a speech. <br /><br />He pointed out that the Index of Industrial Production (IIP) is also prone to sharp revisions. “When we were making policy the IIP number available to us in February 2010 was 6.8 per cent, whereas the economy was actually growing much faster,” he said.<br /><br />“Provisional numbers which are off mark by significant margin can mislead policy calculation,” he said adding such revisions were also factors behind RBI making inflation projections that proved to be below the actual number in the last fiscal year. “Last year RBI’s inflation projections were systematically below the actual outcome,” Subbarao said.<br /><br />Factors that led to the miscalculation included higher-than-expected gains in oil and other global commodity prices and a lower than expected decline in food prices despite a normal monsoon, he said. <br /><br />He also cited “erroneous signals from the then-available IIP data which suggested moderation in growth and demand,” as well as “larger than usual upward revision to the past inflation data.”<br /><br />The government last month changed the base year of the IIP data calculation to 2004-05 from the old calculation base of 1993-94. Even as the updated base has corrected some anomalies, yet the data still suffers from volatility.<br /><br />The RBI had initially projected inflation to be at 5.5 per cent by end of March 2011 but subsequently revised it upwards to 7 per cent and later to 8 per cent. Ultimately, March-end inflation was revised upwards in June to 9.68 per cent from 8.98 per cent in April.</p>
<p>Subbarao also said the headline inflation index based on the wholesale prices was also not a true reflection of the impact of price rise on the common people. <br /><br />“The use of wholesale price index (WPI) as the headline inflation index is flawed as it does not capture the final goods prices that consumers actually experience in the market,” said he while delivering an inaugural address at the Statistics Day Conference of RBI.<br /><br />RBI should be guided more by the consumer price index (CPI) which more accurately reflects demand pressures because it is demand pressures that monetary policy action can influence, according to him. It may be noted that RBI had raised interest rates 10 times since March 2010 to control inflation that has consistently outrun its forecasts. <br /><br />“Each time when we have to make an assessment of inflation situation, we are left to double guess how the provisional numbers may be revised upwards,” said he in a speech. <br /><br />He pointed out that the Index of Industrial Production (IIP) is also prone to sharp revisions. “When we were making policy the IIP number available to us in February 2010 was 6.8 per cent, whereas the economy was actually growing much faster,” he said.<br /><br />“Provisional numbers which are off mark by significant margin can mislead policy calculation,” he said adding such revisions were also factors behind RBI making inflation projections that proved to be below the actual number in the last fiscal year. “Last year RBI’s inflation projections were systematically below the actual outcome,” Subbarao said.<br /><br />Factors that led to the miscalculation included higher-than-expected gains in oil and other global commodity prices and a lower than expected decline in food prices despite a normal monsoon, he said. <br /><br />He also cited “erroneous signals from the then-available IIP data which suggested moderation in growth and demand,” as well as “larger than usual upward revision to the past inflation data.”<br /><br />The government last month changed the base year of the IIP data calculation to 2004-05 from the old calculation base of 1993-94. Even as the updated base has corrected some anomalies, yet the data still suffers from volatility.<br /><br />The RBI had initially projected inflation to be at 5.5 per cent by end of March 2011 but subsequently revised it upwards to 7 per cent and later to 8 per cent. Ultimately, March-end inflation was revised upwards in June to 9.68 per cent from 8.98 per cent in April.</p>
