Beyond the hysterical coverage of JNU, Vijay Mallya and assorted acts of intolerance, every media outlet today has carried news about inflation. As per the figures released on March, 14, 2016, wholesale inflation has seen a decline for the 16th consecutive month and was reported to be (-)0.9% on a point to point basis in February, 2016.
More important, the consumer price index witnessed a decline for the third consecutive month and was reported to be 5.18% on a point to point basis. There were some self congratulatory pats on the back from finance ministry bosses. Economic Affairs Secretary Shaktikanta Das tweeted that the decline in inflation rates was along expected lines and was primary caused by decline in food inflation. All this has prompted pundits to speculate on how soon RBI governor Raghuram Rajan will announce an interest rate cut. Most analysts suggest that a 25 basis points cut is more or less guaranteed while some have stuck their nexus oit by saying a 50 basis points cut is more likely.
In this age of instant news replaced quickly by more instant news, the one about declining inflation will almost certainly go off the radar by tomorrow; except speculation about interest rate cuts. But look closely at the data and some troubling questions do emerge. Perhaps qualified statisticians and economists would have plausible explanations for some "peculiarities" observed in the inflation numbers. But till that happens, this author at least will remain baffled by the numbers. Firstly, it has been quietly announced that the base year to measure consumer inflation has been shifted from 2010 to 2012. The release that states this also says that NSSO volunteers in select towns and post offices in select villages have been used to collect the raw data.
Now let's look at the raw data. The rate of inflation for almost every item under the category food is much higher in rural areas than urban. Common sense suggests that in the case of at least some food items, prices would be much higher in urban areas because of transport and "middlemen" charges. But exactly the opposite is shown by the data. For example, in cereals, the rate of consumer inflation in rural India is 3.08% while it is 0.4% in urban India. Vegetables are even more mystifying. The rate of inflation for vegetables in rural India is shown as 2.14% while that in urban India is (-)1.9%. Anyone who has travelled to villages in India knows that prices of vegetables in villages are substantially lower than in towns and cities. You might say that these numbers talk of the rate of increase in prices and not the actual prices. But something doesn't quite add up. Common sense says that non-food items might see higher prices and higher rates of inflation in rural India. Exactly the same is vindicated by these numbers. Clothing, footwear, personal care products, education and health all show higher takes of inflation in rural areas. But there is another mystery here. The data suggests that the rate of inflation for the category "fuel & lighting" is 6.4% for rural India as compared to 1.5% for urban India. This can perhaps be explained by the fact that urban India uses petrol, diesel and gas more intensively than rural India.
But look at state wise figures and the mystery deepens. According to the latest data, the poorest states of India suffer from the highest rates of consumer inflation. The rate of consumer inflation in rural Jharkhand is 8.36% while it is 9.09% in Chhattisgarh and 9.52% in Odisha. It is well below 4% for rural Punjab and Haryana. But to add to the confusion, rural Gujarat reports an flatiron rate of 7.2%. Till less than two years ago, they were one state. But now, rural Andhra Pradesh reports a 9.01% rate of inflation while breakaway state Telangana reports a 6.61% rate of inflation. The other question to ask is: how can there be such massive differences in rates of inflation across India states? It ranges from 2.86% in Punjab to 9.52% in Odisha.
Clearly, there is more to the inflation numbers than meets the eye. One hopes better qualified statisticians and economists are able to explain these "mysteries". In recent times, many doubts have been expressed over the quality and validity of data released for GDP. More questions about inflation data would surely add to the confusion.
