Rethinking Inflation
Increases in per-capita income growth bring either a rise in the inflation rate or appreciation of the rupee. Since India has generally resisted rupee appreciation, some acceleration in inflation is predicted.
There has been remarkable consensus among the public, press and policymakers on the severity of the recent inflation bout, its detrimental effects on the poor and the need to combat it on a war footing. The government has gone on to deploy every conceivable weapon in its arsenal - cutting import duties, banning exports, appreciating the rupee in the initial phase, raising the cash reserve ratio, suspending futures trade, cutting excise duties, imposing export taxes and threatening price controls to tame the monster.
Is the consensus view right? To gain perspective, let us begin with a review of the rates of inflation during the past several decades. On an annual basis, data allow us to do this by recourse to the Wholesale Price Index (WPI), Consumer Price Index for Industrial Workers (CPI-IW) and Consumer Price Index for Agricultural Labourers (CPI-AL). WPI is also readily available on weekly and monthly bases and for individual commodities.
Is the consensus view right? To gain perspective, let us begin with a review of the rates of inflation during the past several decades. On an annual basis, data allow us to do this by recourse to the Wholesale Price Index (WPI), Consumer Price Index for Industrial Workers (CPI-IW) and Consumer Price Index for Agricultural Labourers (CPI-AL). WPI is also readily available on weekly and monthly bases and for individual commodities.