Inflation at -1.61%. Should you be happy?

Eventhough the government has been harping that inflation has dipped into negative levels, does it mean that the prices of all essential goods have gone down?  Vegetables still cost high, fuel prices are still high, housing and rentals are still beyond the reach of the common man.  What is the data based on which the government claims that the inflation has been steadily decreasing ever since it reached double figures around 6 months ago?

This is because the Indian government is one of the very few governments in the world that calculates inflation based on Wholesale Price Index (WPI) and not Consumer Price Index (CPI) as the rest of the world does.

According to Wikipedia, Wholesale Price Index (WPI) is the price of a representative basket of wholesale goods. Some countries (like India and The Philippines) use WPI changes as a central measure of inflation.

Whereas, Consumer Price Index (CPI) is a measure of the average price of consumer goods and services purchased by households.

This is the reason why inspite of the govt’s claims that the inflation has entered negative territory, you dont see any decrease in the prices of goods when you go shopping. The figures that the govt trots out is wholesale prices.  The common finds no relief as the reduction in the wholesale prices take a long time to trickle down to his level.

According to the Reserve Bank of India website, CPI at the All-India level as on 11 June 2009 is 4.63%.  Anything else that the government tells you is simply hogwash.

+++