‘Though CPI numbers are still high, prices are declining rapidly’.
Reserve Bank of India (RBI) Deputy Governor Subir Gokarn on Thursday said food inflation had become “worriedly higher” owing to the rapid rise in the prices of protein items.
“The new wholesale price index has a higher weight for protein sources, reflecting changing consumption patterns,” Gokarn said while addressing a seminar on data and RBI’s subsequent decision-making here on Thursday.
“As prices of these items are rising steadily, food inflation has been worriedly higher despite a good monsoon.”
According to the latest data released by the ministries of commerce and industry, food inflation rose to 18.32 per cent from 14.44 per cent, lifting the primary articles’ inflation to a seven-month high of 20.20 per cent for the week ended December 25.
Consumer price inflation presented a relatively optimistic picture, Gokarn said.
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“The CPI (consumer price index) basket still gives pre-dominant weight to cereals. As cereal prices have been favourably impacted due to good monsoon, the overall inflation measured by CPI presents a relatively more optimistic picture.”
“Though the (CPI) numbers are still high, prices are declining rapidly,” he added.
India’s annual inflation, based on CPI for industrial workers, fell to a 20-month low of 8.33 per cent in November, as against 9.7 per cent a month ago.
Gokarn said the lag in numerous data released in India was posing a challenge to RBI’s decision-making process.
In the context of its monetary policy, the current data used by RBI was the index of industrial production, which came out with a lag of six weeks and was revised after two months.
“Policy decisions are made within the confines of lagged information flow,” he said.
Based on lagged data, central bank’s decision-making was akin to a car’s odometer which gave an acceleration after 20 minutes, he said.
“If you are driving a car and you have to decide whether to press the break or the accelerator, the decision obviously depends on real-time information about the current speed the odometer provides. It is of very little use to the driver if it says your speed was five kilometers, 20 minutes ago. These are exactly the circumstances under which policy decisions are made,” he said.
However, there was scope for reducing the lag and the magnitude of data revisions, he added.