You can’t formulate policy on weekly data

You can’t formulate policy on weekly data

Mumbai: The Wholesale Price Index, or WPI, which is released every week, is the most watched measure of inflation in India. After years of delay and complaints about its inconsistencies, the government finally decided to change it from a weekly indicator to a monthly one, besides making it more inclusive. Jahangir Aziz, chief economist of the Indian unit of JPMorgan Chase and Co., tells Mint about the implications of the change and the need for a better consumer price-based index. Edited excerpts:

Do you think WPI will succeed in removing the inconsistencies and anomalies of the old one?

I think it will go a long way in removing them. With the base year changed to 2004-05, you now have a larger weight in the index for manufacturing, as it should be. You have more manufacturing goods in the survey. All these are the right steps. And they needed to have been done long time back.

But at the end of the day there is a problem that used to be there with the old WPI—which remains—as to how timely survey responses will be. Given that the data collection is now monthly, rather than weekly, it gives some more leeway to the authorities to follow up with people who haven’t responded. But until you have timely responses from the several thousand points of collection the problem will persist.

Is non-responsiveness the only problem?

The other problems have largely been dealt with. You have a larger base; you have got rid of things like typewriters…WPI has finally moved into the 21st century.

Is monthly data enough for policy making? Will the weekly data add to the confusion?

I think whenever the weekly data on fuel and primary articles comes out, people will try to work out what the monthly number is going to be. It won’t create as much excitement as the weekly numbers now do, but will still create some buzz. As it is, fuel and primary articles will have an even smaller weight than now.

Monthly data should be sufficient for policy making. That’s the practice all over the world. You can’t formulate policy based on weekly data. They are very very volatile.

Why hasn’t the government gone in for a Consumer Price Index (CPI)? Isn’t that a better measure?

I think they should go the whole hog and change it into a full comprehensive CPI. Because in the absence of the CPI, we will still have the same problem. Is WPI the right reflection of inflationary pressures? Then, there is the gap between WPI and CPI, which will remain.

At present CPI has 25% weight on services, which is excluded from WPI, as it should be, for WPI is a wholesale price index. Wholesale doctor’s charges or school fees doesn’t make much sense. But we need to have a CPI that is comprehensive and representative of the “people of India".