The Hindu Business Line : Gap between inflation estimates widening

IT may be a plain coincidence. Ever since the United Progressive Alliance (UPA) Government assumed power at the Centre, the gap between the `final' and `provisional' estimates of the annual wholesale price index (WPI)-based inflation has been showing a perceptible widening trend.

The accompanying table gives the provisional and final WPI numbers over a 12-week period, along with the corresponding point-to-point inflation rate figures. The 12 weeks extend from that ended April 17 to the one ending July 3, for which the final WPI data has been released by the Office of the Economic Advisor in the Ministry of Commerce and Industry.

It can be seen that during the first six-week period, the difference between the final and the provisional inflation estimates ranged from a low of six basis points (week ended April 24) to a high of 40 basis points (weeks ended May 1 and May 8). The average gap for this period worked out to about 27 basis points.

But during the subsequent six-week phase, starting from the week ended May 29, the picture underwent a drastic change. The gap between the final and the provisional inflation figures ranged from 58 basis points to as high as 115 basis points, with the average difference for this period amounting to over 82 basis points.

What is interesting is that the second period, which saw the disparity between the final and the provisional estimates truly widen, was also the time when the UPA Government took charge. The day, when the new Government was sworn in (May 22), happened to be the week when both the provisional and final inflation rates ended up crossing the 5 per cent mark.

Since then, the provisional inflation rate has continued to rise, but at a much less frenetic pace compared to the final figures. While the provisional inflation rate breached 6 per cent only on June 26, the final estimates reveal that this level had actually been breached a good three weeks earlier. Similarly, the latest final WPI estimates show an inflation rate of 7.08 per cent for the week ended July 3, whereas the provisional figures registered a seven per cent plus level only three weeks later (week ended July 24).

What does this imply for the latest provisional inflation estimate of 8.33 per cent, released here on Friday, for the week ended August 28 — the highest since the 8.49 per cent recorded for February 17, 2001?

Going by the observed chasm between the final and the provisional WPI data for the recent period, there is a distinct possibility that the actual inflation rate may be close to 9 per cent, if not more.

The last time that the final annual inflation figure was close to 9 per cent was for the week ended January 13, 2001, when it touched 8.84 per cent. And when did it last rule above 9 per cent? In September 1995 during Dr Manmohan Singh's tenure as the Finance Minister.