Headline inflation components, base year revised

The government has changed the composition of its inflation data series, giving greater emphasis to manufactured goods at the expense of primary products including food, a day ahead of its release of price data for August.

Last Updated: Sep 14, 2010, 11:16 AM IST

Mumbai: The government has changed the composition of its headline inflation data series, giving greater emphasis to manufactured goods at the expense of primary products including food, a day ahead of its release of price data for August.

The government has also revised the base year for wholesale price index (WPI) inflation to 2004-05 from 1993-94 and increased the number of components by one-third, adding items such as ice-cream, mineral water, computers, gold, construction machinery and TV sets, it said on Monday.

Economists said the new data series, which better reflects an economy that has modernised significantly since the early 1990s, was unlikely to have a major impact on Tuesday`s data release, although a clearer picture would emerge with release of the back series of the new data set on Tuesday.
A Reuters poll late last week showed analysts expect August headline inflation rose 9.6 percent on an annual basis, easing from 9.97 percent in July.

"Since the change in weights is marginal, one should only expect a marginal deviation in the headline number," said Samiran Chakraborty, head of India research at Standard Chartered Bank.

The government has reduced the weight of primary articles to 20.118 percent in the wholesale price index from 22.0253 and increased the weight of manufactured products to 64.972 from 63.749, reflecting a broader shift in the economy.
"Since manufacturing inflation is currently lower than primary articles, we might estimate a downward deviation from earlier estimates, but there has also been a major overhaul in the components of manufactured products itself, so it is difficult to say as of now," Chakraborty said.

Primary articles inflation rose 1.9 percent in July while manufacturing inflation came in at a negative 0.1 percent.

The overall number of items has been raised to 676 from 435 and the number of price quotations that will be collected has surged to 5,482 from 1,918, the government said in a statement.

"Till we get a clearer picture of the composition of the sub-indices we cannot really comment on whether we have to change our expectations," said Sujan Hajra, chief economist at Anand Rathi Financial Services.

Inflation in Asia`s third-largest economy has been stubbornly high this year, but the central bank has said it expects it to dip to 6 percent by the end of March 2011.

Bureau Report