India’s inflation deters foreign investors

[StingRoy]

Why is the inflation rate so high?
Yes, fast growth does lead to inflation, but China is growing fast as well (faster actually)... yet our official inflation rate for the year 2010 was 3.3%.
Inflation is the biggest threat to developing economies.

It all depends on how you calculate your inflation numbers. India's inflation calculation is based on WPI (Wholesale Price Index) whereas Chinese follow an updated CPI (Consumer Price Index). So we can't compare apples to oranges can we?

Additionally it depends on what items are present in the WPI and CPI calculation. India last updated its list of items in WPI back in 94 and most of the items listed in that list may not be any longer relevant to the current consumption patterns. WPI was meant as an indicator for measuring the impact on business owners, not consumers (hence the name).

If you read this article below:
http://in.finance.yahoo.com/news/China-inflation-surprisingly-reuters-1175186234.html

The National Bureau of Statistics also announced an adjustment in the way it calculates consumer price inflation, saying that it better reflected the evolution in Chinese consumption patterns.
Housing was given a much larger share of the new CPI basket, while the weighting of food prices was reduced. These changes were consistent with an economy that is fast becoming more prosperous, allowing urbanites to spend a smaller portion of their incomes on basic needs and more on big-ticket items.

 

[CardSharp]

It all depends on how you calculate your inflation numbers. India's inflation calculation is based on WPI (Wholesale Price Index) whereas Chinese follow an updated CPI (Consumer Price Index). So we can't compare apples to oranges can we?

Additionally it depends on what items are present in the WPI and CPI calculation. India last updated its list of items in WPI back in 94 and most of the items listed in that list may not be any longer relevant to the current consumption patterns. WPI was meant as an indicator for measuring the impact on business owners, not consumers (hence the name).

If you read this article below:
http://in.finance.yahoo.com/news/China-inflation-surprisingly-reuters-1175186234.html

Your country is the only major economy that won't publish a CPI inflation. The WPI has been abandon by most developed countries and major economies.


How India calculates inflation

Wholesale Price Index (WPI)

WPI was first published in 1902, and was one of the more economic indicators available to policy makers until it was replaced by most developed countries by the Consumer Price Index in the 1970s.

WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market. In India, a total of 435 commodities data on price level is tracked through WPI which is an indicator of movement in prices of commodities in all trade and transactions. It is also the price index which is available on a weekly basis with the shortest possible time lag only two weeks. The Indian government has taken WPI as an indicator of the rate of inflation in the economy.

 

[StingRoy]

Your country is the only major economy that won't publish a CPI inflation. The WPI has been abandon by most developed countries and major economies.

You are right. I am also of the opinion that India should switch over to the CPI index, but in order to switch over smoothly, we need to beef up the reporting of the CPI-Urban and CPI-Rural data. At present some of this data lags almost a month behind and hence may not give ample time for the govt to adjust the monetary policy to tackle this. Once the system is in place, it will be in the best interest of India to switch over to the CPI index.

You can read more at the link below:
RBI study bats for consumer index

 

[CardSharp]

You are right. I am also of the opinion that India should switch over to the CPI index, but in order to switch over smoothly, we need to beef up the reporting of the CPI-Urban and CPI-Rural data. At present some of this data lags almost a month behind and hence may not give ample time for the govt to adjust the monetary policy to tackle this. Once the system is in place, it will be in the best interest of India to switch over to the CPI index.

You can read more at the link below:
RBI study bats for consumer index

Meh my point was comparing apples and oranges is legit if the closet thing you had was an orange to compare.

 

[StingRoy]

Meh my point was comparing apples and oranges is legit if the closet thing you had was an orange to compare.

I still fail to see how you can compare both when the very point I proved is the fact that there is a wide deviance between the WPI and CPI in India... hence the move by the Reserve Bank of India to move to a CPI index. There might be a correlation between a high WPI and CPI numbers if and when they are published, but at the moment we don't know what products the govt will consider when it calculates the CPI.
The best you can do is to go by unofficial CPI figures for Indian economy... which again may be oranges (or apples) depending on how you see it.

 

[CardSharp]

I still fail to see how you can compare both when the very point I proved is the fact that there is a wide deviance between the WPI and CPI in India... hence the move by the Reserve Bank of India to move to a CPI index. There might be a correlation between a high WPI and CPI numbers if and when they are published, but at the moment we don't know what products the govt will consider when it calculates the CPI.
The best you can do is to go by unofficial CPI figures for Indian economy... which again may be oranges (or apples) depending on how you see it.

Does the WPI tend to calculate higher the CPI if so why would India stick with it because just on the surface of it most people are going to quote inflation as a percentage irregardless of CPI vs WPI.

This would affect investor (uninformed) confidence.

 

[StingRoy]

Does the WPI tend to calculate higher the CPI if so why would India stick with it because just on the surface of it most people are going to quote inflation as a percentage irregardless of CPI vs WPI.

This would affect investor (uninformed) confidence.

WPI may lead or lag CPI at various times. It used to track each other till 2000, but after that we have seen wide deviations between the two indices. For ex, in 2008-2009, the WPI was very low (around 1-3%) whereas the CPI was somewhere around 8-10% (unofficial). These days, the WPI is pretty high (around 12-15%) whereas the CPI is lagging way behind at around 4-5%.

Investors on the other hand are much more knowledgeable than us, so I am sure they would be taking this factor into consideration before investing in any country.

 

[CardSharp]

WPI may lead or lag CPI at various times. It used to track each other till 2000, but after that we have seen wide deviations between the two indices. For ex, in 2008-2009, the WPI was very low (around 1-3%) whereas the CPI was somewhere around 8-10% (unofficial). These days, the WPI is pretty high (around 12-15%) whereas the CPI is lagging way behind at around 4-5%.

Investors on the other hand are much more knowledgeable than us, so I am sure they would be taking this factor into consideration before investing in any country.

While some investors do do their home and take this into account, it still affects the mores general feelings about a country. Investors are still people and as people they often make decisions based on irrational feelings. Otherwise we would never encounter an asset bubble or a stock market bubble.

But again I guess drawing a CPI would be difficult for now based on the reason you gave.

 

[Water Car Engineer]

The solution therefore is to divide India into 2 entities: the western high development states, and the African level other states. Only by separating the market in India can it develop.

That will never happened. And if you know Indian people, you would know how much of a fail that suggestion was.

 

[StingRoy]

While some investors do do their home and take this into account, it still affects the mores general feelings about a country. Investors are still people and as people they often make decisions based on irrational feelings. Otherwise we would never encounter an asset bubble or a stock market bubble.

But again I guess drawing a CPI would be difficult for now based on the reason you gave.

I think what is important is the relative inflation levels in an economy... If it keeps on increasing MoM, then it is a bad indicator and calls for the govt to control it. But they should not be comparing the inflation levels between two economies to consider their investments.

At the ground level, many people are unhappy at the way the inflation is fluctuating which mainly points to issues in the supply chain and logistics and a lack of govt anticipation and control.

Having said that I think we should move to a CPI based index as soon as possible, which would make it much easier to compare against comparable developing economies.

 

[CardSharp]

That will never happened. And if you know Indian people, you would know how much of a fail that suggestion was.

No but regionalism and regional politics on the national stage is alive and well apparently.

 

[GLOBAL HAWK]

Wow !

OK India's price rise deters Foreign Investment SO !!!!!

What's up with all these BS advice being let off free by So called Senior Chinese members here, who gives a rat's bottom !!
It aint u'r country, they aint u'r ppl .
Hell it aint mine !

STOP preaching about economy and get to work, Just read the news and consider point noted .
Spare the BS

 

[CardSharp]

Wow !

OK India's price rise deters Foreign Investment SO !!!!!

What's up with all these BS advice being let off free by So called Senior Chinese members here, who gives a rat's bottom !!
It aint u'r country, they aint u'r ppl .
Hell it aint mine !

STOP preaching about economy and get to work, Just read the news and consider point noted .
Spare the BS

Well that was fairly incoherent. Should I be offended? I'm confused.

 

[Water Car Engineer]

No but regionalism and regional politics on the national stage is alive and well apparently.

Doesn't mean South wants to separate from North, or should.. I am from Kerala and many others here are from South, we would never want to separate from India as a whole. Even if South is fairing better then Eastern Areas. Joke of the day.

 

[Chinese-Dragon]

Well that was fairly incoherent. Should I be offended? I'm confused.

I'm confused as well.

This hasn't exactly been a flame-thread.