To make the job of economists easier, statistical departments in advanced countries release seasonally adjusted data in addition to the raw data. These numbers are then picked up by the media, the central bank for policy analysis and by the government for its communication with policy-makers.

Despite the obvious advantages of watching seasonally adjusted monthly inflation data which have been pointed out by Indian economists for many years, it is unfortunate that the government of India still does not produce and release seasonally adjusted data. In a recent study at NIPFP we find evidence of the crucial early warnings which would have emanated from monthly data. For example, inflationary pressures were visible from January 2008 when the data for December 2007 was released. While the headline inflation numbers jumped up only in March, the trend was visible from December 2007. Inflationary pressure continued to grow after that. If monthly data had been tracked, the December data (that is out by mid-January) would have rung alarm bells. This would have stopped RBI on its tracks in its purchase of USD 21 billion in the spot and forward markets in January 2008. It would then perhaps also not have bought another USD 11.16 billion till the end of May 2008. This not only pushed the rupee to weaken, making the rupee price of global commodities even higher, but it also added to money supply.

There is also a risk of missing the good news with year-on-year data. In the mid ’90s when seasonally adjusted monthly inflation was already showing signs of prices having been brought under control, year-on-year inflation continued to be high. RBI, unaware of this good news, kept on tightening monetary policy. This appears to have kept monetary policy tight for too long.

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