Letters: CPI and inflation

In the forthcoming mid-quarter review of policy the Reserve Bank of India (RBI) should announce shifting its focus to consumer price index (CPI) from wholesale price index (WPI). It has already given up the inappropriate use of the concept of "core inflation" derived from WPI. The RBI is no doubt reckoning with a number of indicators that include CPI also, but the focus has been on WPI due to the historical reason of its more frequent availability. The rationale for not using the comprehensive CPI as the anchor for policymaking is that the new index does not have a long-enough time series. Does it really matter if one can get the latest year-on-year inflation rate for consumer prices from the available series? The consumer is concerned with the current inflation rate and it is no consolation to him to be told that it is lower than what it had been a year ago. It is the research worker who should be worried about the number of observations and the degrees of freedom for his statistical tests of significance. The case for the shift to CPI is buttressed by the fact that the RBI proposes to issue inflation-proof certificates indexed to CPI.

A Seshan Mumbai

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