Thursday, March 18, 2010

The inflation problem

Another year, another messy situation with inflation: we continue to suffer the consequences of faulty economic policy institutions. To get a sense of what is going on, be sure to ignore the standard year-on-year inflation data (which shows what happened in the last 12 months), and instead use seasonally adjusted month-on-month price changes (which show what happened last month). And, see the column by Ila Patnaik in the Indian Express yesterday.

6 comments:

  1. Well the developed world is facing deflation threat again and their monetary policy is not working effectively. Fiscal policy has no room left for more QE because of political constraints. Even they are trying political steps against china (which will be failed too). Stock markets are well managed globally and used for hiding real information. Paul krugman, although smart guy, is becoming more political. Aboveall, India is showing ridiculous inflation @ 10%. Thanks for ur data which is more aligned globally.

    Anyway it seems that global CB's need one more crisis so that bonds should look attractive for risk assets lovers. They don't have much tools left for stopping rising bond yields.

    ReplyDelete
  2. @Anonymous: The data provided by Ajay Shah is also showing inflation over 10%.

    It is incorrect to say that Indian inflation data is ridiculous and it needs to be adjusted to be aligned globally.

    However, I believe that seasonally adjusting data is a best practice and gives a better picture.

    According to official release as well as seasonally adjusted data, inflation is over 10%. But the biggest difference is while official release is trending up the seasonally adjusted data is trending down.

    This indicates to me that inflationary pressures are receding. RBI will set wrong policy based on official data.

    @Ajay Shah: Could you please provide the actual values of seasonally adjusted data on the website? Values would be more useful to do some analysis.

    I do not want to run the entire X-12-Arima program again as I had done here: http://abhikush.blogspot.com/2009/06/seasonality-in-indian-inflation-wpi.html

    ReplyDelete
  3. Abhikush: Please do see the website http://www.mayin.org/cycle.in where the release strategy is comprehensive.

    It includes: (a) Graphs as png files, (b) Graphs as PDF files, (c) Technical document with the testing strategy for each series, (d) CSV files with the seasonally adjusted data.

    ReplyDelete
  4. I was actually looking for the csv file along with the WPI chart. I did not realize that all the data is at the beginning of the web-page.

    Thank you for the pointing it out.

    ReplyDelete
  5. This is a very interesting post, and the comments are also fantastic to read. I’ll have to have a little re-think about my own contact form on our new website

    ReplyDelete
  6. Thanks Ajay, It will definitely be helpful to all of us to get a clear look of what changes are happening recently.
    this is the nice information shared with us.

    ReplyDelete

Please note: Comments are moderated; I will delete comments that misbehave. The rules are as follows. Only civilised conversation is permitted on this blog. Criticising me is perfectly okay; uncivilised language is not. I delete any comment which is spam, has personal attacks against anyone, or uses foul language.