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RBI MPC member Dholakia questions inflation data

NEW DELHI: India's inflation data is once again under scrutiny after a member of the central bank's monetary policy panel raised questions about its efficacy, According to Bloomberg website. There is an urgent need to modernise the way changes to prices are being calculated by the government as well as the way inflation expectations are being surveyed by the Reserve Bank of India, Ravindra Dholakia, a dovish member of the panel, wrote recently in the Economic and Political Weekly.

"If a country accepts inflation-targeting framework, it has to be extremely serious and cautious about the correct and realistic measurement of its inflation rate," Dholakia said. "Inflation-targeting framework without proper measurement of inflation rate can involve very high real costs and make the policy counterproductive," the Bloomberg report added.

Dholakia said the current practice of measuring the inflation rate from a fixed base weight index is "outdated" and likely to overstate inflation substantially compared to the chain-weighted index used in developed countries.

The latter refers to the method of continuously changing the weight of goods and services to match prevailing trends as opposed to keeping it fixed, Bloomberg said The comments come at a time when inflation continues to undershoot the RBI's forecasts. Inflation averaged 4.3 percent in the six months of the fiscal year through September.

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