I have an article in Financial Express titled Watch the policy rate in real terms, but worry about how little it matters where I discuss monetary policy in India's slowdown.
A key flaw that is being made in the public discussion of inflation is the use of year-on-year measurement of inflation. While the yoy WPI inflation stands at 5.25% in January, the WPI has dropped from a level of 241.5 in September 2008 to 229.6 in January 2009. What we have today is a period of deflation but the use of yoy inflation measures - which represent a moving average of the latest 12 monthly shocks - yields a misleading input into economic analysis.
In similar fashion, CPI-IW inflation shows 10.45% on a yoy basis in January, but the level of the CPI IW has been flat from October 2008 to January 2009. To use yoy inflation as a measure is to get a very wrong picture of the inflationary pressures in the economy.
On the subject of better early warnings of inflation, and how this sheds light on monetary policy in the past, see this paper.