RBI releases report on seasonal movements in inflation

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Mumbai, Mar 17 (UNI) Inflation rate based on annual point-to-point basis, supplemented with month-over-month and fixed base (using seasonally adjusted price series) provide better signal regarding price dynamics in the Indian economy, according to a report released by the Reserve Bank of India (RBI).

The report on Seasonal movements in inflation provided by the internal technical group of the RBI concluded that all the price series in India namely the wholesale price index and the consumer price index have peak/trough months around the same time of the year mainly due to seasonality in food prices.

The report said measurement of inflation rate based on annual changes in prices or annualisation of changes over shorter period (month/quarter) was necessary for relating inflation with financial indicators such as interest rates. It said ''communication of inflation rate appropriately is important, as economic agents and financial markets are expected to form their price expectations based on official published figures. Publication of inflation figures, not consistent with actual movements in price series such as WPI/CPI, may result in formation of biased expectations''.

The report said generally the price level was likely to show upward bias during August-November, whereas for the remaining months the price level should show the downward bias. Seasonality was more profound in various CPs as compared to WPI.

Although the impact of seasonality was much pronounced in prices of fruits and vegetable and relatively moderate seasonality in some foodgrains such as wheat and pulses, they also influence the seasonal behaviour of aggregate rice index due to their high weights.

Excluding these commodities, the degree of change in WPI, due to seasonality was relatively low. Seasonality in manufactured products was very low and emanates from price changes for food products.

The Technical Group on 'Seasonal Movements in Inflation' was set up to examine the pattern of seasonal behaviour of inflation and gauge the inflationary pressures in Indian economy, analysed in detail, different ways of presentation of inflation, namely, annual point-to-point inflation based on weekly Wholesale Price Index (WPI), inflation based on moving average of 4/12/24/52 weeks of WPI, fixed base, and month-over-month.

The report has been posted on the RBI website for comments.

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