Key Points
The current index is derived from the consumption expenditure survey (CES) conducted during 2011-2012, long before inflation targeting was adopted as a formal monetary policy objective.ANIRepresentative.
The government needs to expedite its work on the revised consumer price index (CPI) which may help the central bank manage inflation expectations better as the published indices are divergent from market prices due to the 2012 base in the current series...
"This method of aggregation at times creates challenges for use of the index for monetary policy since the inflation based on it reflects, in addition to changes in retail prices of goods and services, data kinks that emanate from the aggregation methodology," Praggya Das and Asish Thomas George, from the RBI's monetary policy department, wrote in a research paper published in the central bank's latest monthly bulletin...
Following the release of the January 2023 provisional CPI print (on February 13, 2023) by NSO, there was considerable debate on the aggregation methodology followed in CPI as a result of a large divergence in the headline CPI inflation published by the NSO over that of a derived overall CPI inflation that users computed from a weighted aggregation of the CPI item level data..
In January and February 2023, the divergence in CPI fuel group inflation persisted, but its impact was offset by substantially higher published cereal inflation (compared to the derived cereal inflation), resulting in higher overall published inflation than that derived by vertical aggregation of items, they said...
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