The rating agency, CRISIL, in a bid to capture demand-side pressures on prices has released a new indicator for inflation called the Crisil Core Inflation Indicator (CCII). The indicator is derived from the existing Wholesale Price Index (WPI) and is expected to supplement the existing indicators that influence the Reserve Bank of India’s (RBI) interest rate decisions.
As per the rating agency, a good core inflation measure should exclude the impact of temporary movement in overall inflation, and the CCII does just that. CCII includes processed food and metal products to take into account the second-round of impact of supply shocks and it excludes base metal prices which are directly influenced by international prices.
It plans to release the CCII every month using WPI data published by the Ministry of Industry and Commerce. As per its first forecasts, it expects inflation to drop to around 4% in 2012-13 from nearly 7% in 2011-12. This is expected to create a conducive environment for rate cuts by the RBI. However, the timing and quantum of the cuts will depend on other factors such as oil prices and the government's actions towards fiscal consolidation.
The government has recently started releasing the Consumer Price Index (CPI) along with the traditional wholesale price index (WPI) in a bid to gauge the impact of price rise on the actual consumer. Also the RBI is expected to release its monetary policy on the 17th of this month.
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