Rajan consults statistical ministry over new retail price inflation

New CPI data, released last week, showed that inflation rose to 5.11% in Jan from 4.28% in Dec

Reserve Bank of India (RBI) Governor Raghuram Rajan called officials of the Ministry of Statistics and Programme Implementation (MoSPI) over the way the new Consumer Price Index (CPI) is compiled.

The CPI is the primary inflation index that RBI uses to decide on its monetary policy.

“After two days of deliberations (on Friday and Saturday), the governor and RBI officials were convinced and accepted the revision as a welcome move,” Ashish Kumar, director-general with the Central Statistics Office (CSO) under MoSPI, told Business Standard.

Talks between the RBI governor and MoSPI officials centred on whether or not inflation had moderated due to a change in the methodology for compiling the index. In the new series, the geometric mean is used, against the arithmetic mean used earlier.

Other users of the CPI have also held talks with ministry officials in this regard.

CPI data released last week showed inflation rose to 5.11 per cent in January from 4.28 per cent in December (according to the previous series, inflation stood at five per cent in December). The data was based on a new CPI series, with a base year of 2012, against 2010 earlier. Besides, the weights of various items in the index were tweaked on the basis of the consumption expenditure survey for 2011-12 (earlier, the survey for 2004-05 was used to gauge the weights).

Now, item indices are being computed using the geometric means of the price relatives (current prices with respect to base prices in different markets), in line with international trends. Using geometric means moderates the volatility in the indices.

“All the users of CPI data, including RBI, plan their strategy on the basis of the revised series. The revision has been done in consonance with international practices,” said a CSO official.

RBI had set a target of restricting inflation to eight per cent by January 2015, which has been met. For January 2015, the target is six per cent.