India’s inflation rate based on Wholesale Price Index currently runs at 3.01%; a five year low. But experts say that the real rate of inflation is understated in India.
Fuel prices are a major contributor of inflation in India. And the government hasn’t raised fuel prices even though the global oil prices have reached close to $100 a barrel. The rise not being transferred to the economy means we are riding on an unreal inflation rate which would have increased otherwise or ideally should have.
Liquidity (supply of money) in the market is another factor that affects inflation rate in India. Due to foreign inflows (money from outside) and a subsequent appreciation of rupee, liquidity should have moved upwards, contributing to inflation. But the RBI is adopting CRR hike and other similar measures that suck liquidity out from the economy which could have increased inflation otherwise.
It seems the Finance Ministry is concerned only about reducing inflation, as have been repeatedly talked off by the FM. This would add to the woes on an already criticized method of inflation calculation, which is based on WPI with respect to the more accurate CPI.
- How is WPI inflation rate calculated in India?
- Inflation rates of India (2009)
- Inflation rates of India (2008)
- Commodities and their weightages in WPI calculation of India, Part I