Figure revisions may up inflation

Outsized revisions in the provisional Wholesale Price Index (WPI)-based annual inflation rate in recent weeks are likely to show higher inflation figures than have been reported this March.

The provisional inflation estimate for the week ended March 29 stood at a 40-month high of 7.41 per cent, due to higher metal, food prices as well as delayed revisions to the index.

Accompanying the data was the final revision to the WPI estimate for the week ended February 2. The revision "" a steep 67 basis points "" pushed the inflation rate up to 4.74 per cent, from the provisional figure of 4.07 per cent.

For the five weeks, from January 5 to February 2, the average revision in the index was 57 basis points.

The initial WPI estimate is revised two weeks later, followed by a final revision, which is announced after a gap of eight weeks.

The recent scale of the revisions suggests the inflation rate seen this March (the index rose 2.3 percentage points within the month) would perhaps be even higher in March when the final estimates for the month are announced after eight weeks, in May (see chart).

India's chief statistician Pronab Sen blames the recent revisions on the month-long delay in receiving data from large steel producers.

"The large revisions are due to delay in getting the data. At present, producers send the data to us. As there are large producers in the metal and mineral sectors, any delay in sending us the data leads to the revisions seeming sharper," said Sen.

Economists also expect the sharp revisions to continue for some more weeks. "The revisions may be even larger than at present. This will continue till the first week of March, as steel price inflation was completely understated till then. After that, the magnitude of revision will moderate," said Saugata Bhattacharya, vice-president, Axis Bank.

Agrees Dharmakirti Joshi, principal economist, Crisil, adding that the delayed iron ore price revision would be reflected in the data for the week ended March 15.

Bhattacharya blames the current situation on the inadequacies in the data capturing system employed to measure WPI. "The government needs to revise the data collection system and capture the data better," he said.

However, Sen says the statistical department is not planning to change the data collection system. "We do not plan to revamp the system of price data collection for the present WPI time series. However, for the new series which is under preparation, we may change it," he added.

A proposal to revise the WPI base year to 2000-01 from the present 1993-94 is currently being examined by an expert committee headed by Planning Commission member Abhijit Sen.