IMF paper moots method, puts inflation at 4.7 pc | business | Hindustan Times
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IMF paper moots method, puts inflation at 4.7 pc

business Updated: May 21, 2008 21:02 IST
Sandeep Singh
Sandeep Singh
Hindustan Times
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The rate of Inflation in India may not be as high as it is made out to be from government data on wholesale prices, according to a discussion paper by the International Monetary Fund.

The paper, a copy of which has been shared with the Finance Ministry, estimates the current inflation rate in India at 4.7 per cent, much lower than the government’s estimate of 7.83 per cent for the week ended May 3.

The IMF paper has opted for week-over-week changes in prices as opposed to year-on-year comparisons done by the Indian government.

The rationale for year-on-year comparison is based on the fact that it helps factor in seasonal changes in prices.

But the IMF paper said it is possible to make adjustments for seasonal changes even as one compares week-over-week changes in prices to calculate the inflation rate.

The rate of inflation, after making such adjustments, was found to average around 4.7 per cent between April 5 and May 3, the paper said. So inflation “is already within the comfort zone,” the paper said, adding the pace of price rise has slowed the five weeks ended May 3.

In contrast, according to government data, inflation rate continued to rise through the past month, and it is widely expected to go beyond 8 per cent in the coming weeks.

The IMF paper comes at a time when the spike in inflation has already sparked political protests and renewed a debate on methods used to estimate the numbers.

On Tuesday, Reserve Bank of India Governor YV Reddy said in Singapore the actual inflation rate could even be higher than the government’s estimate of 7.83 per cent.

Some experts, however, find merit in the suggestions made in the IMF paper about the efficacy of week-over-week comparisons.

“We should move on to a sequential week-to-week or a month-to-month measure that is seasonally adjusted and annualised. It is far more intuitive,” said Abheek Barua, Chief Economist, HDFC Bank. Most of the developed economies follow the monthly sequential change for inflation calculation, he added.