WPI inflation lacks welfare aspect, says Gokarn

pWholesale price index WPI- based inflation lacks the characteristics to measure welfare aspect of consumers according to the Reserve Bank of India RBIppThe central bank takes the WPI-based inflation into account for policy formulation though it has also talked about consumer price index CPI- based inflation in recent times while announcing monetary policy measures The government has started announcing CPI-based inflation since February 2012 which comes with a lag of one monthpp&ldquoThe reason why we worry about inflation is because it is a welfare issue WPI does not directly measure what people are paying for their daily necessities WPI is not directly related to welfare&rdquo said RBI Deputy Governor Subir Gokarn who looks after the monetary policy department of the central bankppWPI inflation has been stubbornly high for the past three years which has prompted the central bank to hike interest rates 13 times between March 2010 and October 2011 Although the RBI reduced the key policy rate in April &mdash by 50 bps to 8 per cent &mdash it maintained status quo in the next four policy reviews The RBI is expected to hold rates once again when it announces its next policy review on 18 December as inflation continues to stay above the central banks medium-term comfort zone of 5 per centppThe data on WPI inflation for November is expected on FridayppGokarn also said that the RBI wants to get inflation under control because it is in the long-term interest of the economy in terms of supporting higher growth over a long period of timeppAccording to Gokarn the WPI emerges as a quick and somewhat limited indicator and it has maintained that status because nothing has come along to displace it &ldquoWe have a recent attempt to do that through the CPI which aggregated all India CPI That has some promise as a replacement or a successor to the WPI But it is still new and just a year old We need to understand its properties and dynamics But we look at it as a potential successor and at this point of time it is in the evaluation process&rdquo said GokarnppAccording to Gokarn the drivers of food inflation currently are milk protein products meat eggs pulses to an extent and vegetables &ldquoPeople are diversifying their diets and putting demand pressure on these products But the prices of these products are rising and this means the production system has not shown the capacity to respond to these demands&rdquo said GokarnppHe added that international commodity prices are also a source of concern when we look at our high growth phase &ldquoThe global demand has been quite sluggish due to which it could have expected that commodity prices particularly oil would have softened But that has not been the case We have to think in terms of managing demand There are bottlenecks in terms of infrastructure and other parts of the supply chain which are the cause of problem&rdquo said GokarnppAccording to him the mainstream paradigm of monetary policy is that it is very important for consumers investors and various stakeholders to have some confidence in the system&rsquos commitment to a lower inflation regime He said that overall there are a number of risks on the inflation front in terms of what is being done about themppFiscal deficits should be reduced to bring interest rates said Gokarn adding that there is a need for reorientation of public spending from consumer-oriented expenditures to investment-oriented expenditures &ldquoPublic investments strategically done helps towards multiple benefits in terms of businesses individuals and households&rdquo said Gokarnp