52-week average inflation at 7.12 percent

New Delhi: The finance ministry Sunday said India's overall inflation averaged at 7.12 percent and that for primary articles like pulses and fruits at 7.86 percent in 52 weeks, ending Aug 30 this year.

"Annual rate of inflation is a cumulative impact of changes in prices over 52 weeks. Since consumption is spread over time, average inflation over 52 weeks is often a better measure of the impact of price changes," the ministry said in a statement.

According to the ministry's assessment, inflation for primary articles like fruits and vegetables, fuel and power, and manufactured products like textiles averaged at 7.12 percent for 52 weeks ending Aug 30 against 5.46 percent for the last corresponding period.

"Average 52-week inflation for three broad groups of commodities (primary articles, fuel and power and manufactured products) indicate that while overall inflation is higher in the current year, inflation for primary articles is lower (7.86 percent) compared to the rates (9.49 percent) in 2007-08," it said.

As per the wholesale price index (WPI), India's inflation rate stood at 12.1 percent for the week ended Aug 30, a substantial moderation in inflationary trends, which crossed double-digit to 11.05 percent for the week, ended June 7 this year.

Ministry said seasonal factors played an important role in build-up of inflation. "De-seasonalised index, therefore, are commonly used in assessing price build up. Seasonally adjusted inflation (annualised from month over month build-up) during August this year is provisionally estimated at 5.5 percent, as compared to 12.7 percent in July and 29.5 percent in June this year," the statement added."Annualised seasonally adjusted inflation in August this year has been the lowest since December 2007," it said.

"Inflation for primary food articles at 4.6 percent Aug 30 this year was lower compared to 7.1 percent a year earlier. In manufactured products also, inflation for cement (at 12 percent in the current year compared to 12.9 percent a year earlier, and machinery items (at 5.5 percent in the current year compared to 8.7 percent a year earlier) remained lower," the ministry said.

Some Additions from my desk: Two things needs to be pointed out here: one is restructuring of the WPI because it reflects only the prices of goods and the impact of services is not reflected. Second is the need for a composite consumer price index because at present the CPI is available only for different consumer segments. Hence, we need a consumer price index, which is a general CPI. Having said that, we use the WPI as the data is available without much lag. Secondly, except in years in which primary article prices have risen fast, in all other years the difference between WPI and CPI is not very big.

In my view, over the medium term there is no conflict between lower inflation and higher economic growth. In fact, higher economic growth can be sustained only in an atmosphere of reasonable price stability. However in the short term there could be some mismatch between these two parameters. Price stability is required for promotion of savings and investment.