India's annualised inflation lower than data - IMF

India’s weekly inflation is running at annualised rate of 3.4 percent, within the Reserve Bank of India’s comfort zone and below the official year-on-year rate near 8 percent, according to an internal study by the International Monetary Fund (IMF).

The study comes at a time when latest government data shows preliminary annual inflation, as measured by the wholesale price index, at 7.8 percent in May and an upwardly revised 3-½ year high above 8 percent in mid-March.

The IMF study said using weekly or monthly changes in price data, which were then adjusted for seasonal effects, was better for measuring the rate of change in prices, as year-on-year changes were distorted due to base effects.

The study, made before a revision last Friday showed mid-March WPI above 8 percent, measured price changes in provisional data for the five weeks starting April 5 to May 3 after seasonally adjusting them. It showed inflation for that period running at an implied annual rate of 4.7 percent.

"Inflation has been slowing, quite dramatically," the study concluded.

But it said even if that trend continued, the year-on-year rate was unlikely to subside soon because of unfavourable base effects.

"To the contrary, the yearly rate is likely to climb through June when it could exceed 8 percent," it said.

"And it may not fall to 6 percent until the third or even the final quarter of the fiscal year."

Seasonal adjustment means stripping out seasonal effects such as harvesting and extra working days by using econometrics to examine the underlying data trends.

Joshua Felman, IMF resident representative in India, told Reuters by telephone using provisional data to estimate the rate of change in prices when past data had been revised up sharply may not be very distortionary at the moment as most global commodity prices had stabilised.

Also that stabilisation may take a few weeks to filter into the price index, he said.

Indian policy makers have taken many steps to check price pressures in recent months, including banning some exports and cutting import duties, but the year-on-year readings have stayed well above the central bank’s comfort zone of 5.5 percent.

Felman said what happened to inflation from here depended on a lot of things including government policies.

"I don’t want any one to think I am saying the inflation problem is over and we can go back to sleep," he said.

"The report says 1) that the best way to look at inflation right now is seasonally adjusted weekly or monthly numbers, 2) there are some encouraging signs and 3) because of unfavourable base effects the yearly numbers are going to climb."