Monday, July 25, 2011

Inflation Index for D.A. calculation : inflated ? Expert suspects.

There could be a systemic over-estimation of the retail inflation as measured by the consumer price index for industrial workers, or CPI-IW, as it forms the basis for revision in the dearness allowance of central government employees.
This retail measure of inflation has generally shown a wide divergence with the widely followed wholesale price index (WPI) inflation. "Since the people who collect data for the CPI get their salaries indexed by the same index it actually feeds into some tendency to bloat that," said Kaushik Basu, Chief Economic Advisor, Ministry of Finance. The CPI-IW is compiled by the Labour Bureau and investigators are employed by state governments — directorate of economics and statistics —to collect the prices.

The index is used to decide the dearness allowance of central government employees, which creates the incentive for bloating up the index. "We have found a couple of items that occur in both the WPI and CPI collected by different agencies. We are now tracking these two to see if there is any bias in them. But there are no results as yet," Basu said. "A team at the ministry of finance is looking at various aspects of inflation, this is one thing we are indeed looking at," he said. The labour bureau has strongly denied any such possibility and insisted there was no form of manipulation whatsoever.
Source : Economic Times.

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