India’s use of wholesale price index (WPI) inflation for monetary policy is in contrast to the reliance on consumer price index (CPI) inflation by central banks and governments in other countries. This idiosyncrasy causes a bizarre contradiction: policy makers, businesses and their lobby groups, and the business media are celebrating the significant decline in inflation, relying on WPI inflation. This contrasts with retail inflation, which better represents the inflationary pressures experienced by households, being off the charts.
It’ll come as a rude shock to many that India’s retail inflation is the sixth highest in a ranking of 100 countries. This is both embarrassing and worrying. Indeed, India is the only country where policy makers and most investors have been celebrating the “collapse” in inflation, even though consumer inflation remains worryingly high. Read More