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Rajan consults statistical ministry over new retail price inflation

Reserve Bank of India governor Raghuram Rajan has called up officials of the ministry of statistics and programme implementation (MoSPI) over the way new consumer price index (CPI) is compiled.

CPI is the main index of inflation that RBI uses now for its monetary stance.

“After two days of deliberations (on Friday and Saturday), the governor and RBI officials were convinced and accepted the revision as a welcome move,” Ashish Kumar, director-general with the Central Statistics Office (CSO), told Business Standard. CSO comes under MoSPI.

New CPI data, released last week, showed that inflation rose to 5.11% in January from 4.28% in December. However, it was based on the new CPI series. The new CPI has the base year of 2012 against 2010, used earlier. Besides, weight of various items were tweaked on the basis of consumption expenditure survey of 2011-12 against then existing 2004-05.

The new CPI revised down December inflation from 5% calculated earlier on the old series. The RBI governor and MoSPI officials also talked over this issue. 

The talks centred around whether inflation moderated due to change in the methodology in the compilation of index. In the new series geometric mean (GM) is used against arithmetic mean (AM) and it may have caused fall in inflation. 

The item indices are now being computed using GM of the price relatives (current prices with respect to base prices of different markets) in consonance with the international practice. In the old series, AM was used for that purpose. 

The advantage of using GM is that it moderates the volatility of the indices as GM is less affected by extreme values.

“All the users of CPI data, including the RBI plan their future strategy on the basis of the revised series. The revision has been done in consonance with the international practice,” said the CSO official.

RBI has targeted inflation up to 8% by January, 2015, which has been met. The next target is to keep inflation up to six per cent by January, 2016.

Many users have been holding discussions with ministry officials.

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