India WPI Data Outdated: ET Shows Inflation May Fall Below 6% This Month by Ajay Jindal

Inflation (and a looming credit crunch) is a big worry for Indian economy. It is clear by now that the Indian economy is overheating. While economists may debate both sides of the overheating issue, I suspect when salaries increase at 20-30% annually, and you cant find the right people even after that, it is a sign of overheating.

Analysts could do well to follow Economic Times's commodity index to be a step ahead of government's WPI data. The government's data at at least two weeks late at any point. For example, the latest WPI data available now is for March 3rd. The Economic Times collects data daily, and ET is the only paper which makes a set of commodity indices based on this data. In fact, ET Commodity Indices are the only indices based on spot prices available in this country.

ET Commodity Indices have worked brilliantly in the past. About a year ago, when the government's WPI data was showing inflation at 4% or so, we wrote it should be over 6%. In effect, we said the government data was wrong, and out of step with market prices. Inflation did ultimately rise above 6%. Sometimes govt data goes seriously out of whack with reality (inflation, or even IIP), its never been clear why.

At this point there is no problem with WPI data per se. ET data and WPI data largely matches (check the Mar 3 data).

The advance information (compared to WPI) available with ET Indices shows that WPI will fall going ahead. Foodgrain prices are off sharply and just the foodgrain segment can cause a fall of 0.55% from the 3 Mar'07 levels. Since nothing much is above Mar 3 levels, this means inflation could go below 6%.