Articles by Ila Patnaik

Though monetary policy in India is not explicitly charged with delivering low and stable inflation, it still needs to choose a measure of inflation as a reference. Questions of timeliness, weights in the price index, accuracy of food price measurement, and inclusion of the prices of services are relevant to the choice of measure. This paper looks at detailed price data, expenditure patterns of households and the composition of different price indices available in India, and discusses policies on inflation measurement in other countries. Under present conditions of measurement, the consumer price index for industrial workers, despite some serious deficiencies, is preferable to both the wholesale price index and the GDP deflator as the headline inflation rate. Thus, macroeconomic analysis and policy thinking need to move away from a focus on the WPI to the CPI-IW.

In India, year-on-year percentage changes of price indexes are widely used as the measure of inflation. In terms of monthly data, each observation of a one-year change in inflation is the sum of 12 one-month changes. This suggests that better information about inflationary pressures can be obtained using point-on-point monthly changes. This requires seasonal adjustment. We apply standard seasonal adjustment procedures in order to obtain a point-on-point seasonally adjusted monthly time-series of inflation in India. In three interesting high inflation episodes - 1994-95, 2007 and 2008 - we find that this data yields a faster and better understanding of inflationary pressures.