NEW DELHI: The National Statistical Office’s (NSO) recently released estimate of consumer price index-based (CPI) inflation is “clearly understated”, an SBI Ecowrap report released on Thursday said. CPI inflation is likely to be around 90 basis points higher than the NSO figure if the latest methodology is followed, it added.
The report says that due to the non-availability of data, the indices for sub-groups were imputed using last quoted price, scaled up by the relative increase in CPI. It added that this was a purely statistical exercise which distorts and even under-reports headline CPI.
The report’s authors added that due to the lockdowns, the fixed basket on which inflation is calculated was “totally irrelevant” since many of those items, particularly in the services sector, are no longer available.
The report cites economist Alberto Cavallo’s methodology used to estimate headline CPI in 17 countries by constructing a ‘COVID consumption basket’ and uses this to estimate inflation. This came in higher than the NSO estimate, the SBI report said.
“We call this measure SBI Computed COVID CPI. Based on our new weights, the actual headline inflation is much higher... Our June 2020 inflation is at 6.98 per cent, almost 90 bps higher than... NSO,” it said.
While releasing the data, the NSO had said that the imputation method was used after wide-ranging consultations with multilateral organisations like the IMF and several countries on how they were managing data flow challenges arising from the pandemic.