Flaws in inflation computing process: Experts

Two leading economists associated with the Multi-Commodity Exchange (MCX) have pointed to serious flaws in the present method of calculating inflation and called for a change in line with prevalent methodologies in developed economies.

In a research paper, economists V Shunmugam and D G Prasad have called for a shift in the model followed by developed countries where the Consumer Price Index (CPI) is used to calculate inflation.

Writing the paper in their personal capacity, the duo said: "CPI is the official barometer of inflation in many countries such as the US, UK, Japan, France, Canada, Singapore and China. The governments there review the commodity basket of CPI every 4-5 years to factor in changes in consumption pattern." In India, however, it is the Wholesale Price Index (WPI) which is calculated to decide the inflation rate in the economy.

MCX Chief Economist V Shanmugam told PTI that there were 435 commodities included in the WPI, of which over 100 have ceased to be important from the consumption point of view.

"Some of the WPI commodities include coarse grains that go into making of livestock feed. But they continue to be considered while measuring inflation," he said.

The WPI that was constituted in 1993-94 has virtually remained unchanged since then, he said, adding that in the present context, it has lost quite a bit of its relevance while calculating inflation.