It all started when the little prince who slept all throughout the inflationary UPA decade was forced to wake up from his afternoon siesta/power nap in the parliament. And when this child's ignorant cribs about arhar daal, etc was promptly responded to with statistics from the Finance Minister, this is the best that we could get from the Ex-FM:
PC's Voodoo Statistics!
While reminding the ex-Finance Minister that June 2014 was well within Modi tenure, my intention is not to prove as if the current PM is some kind of a Harry Potter, who just used some wizardry after being sweared into his job and voila' the CPI Inflation came down to 6% levels. The intention here is to show how the Ex- Finance Minister, even when wanting to prove the inflation during his tenure was benign had to pick and choose a best-case number from a month that was not even a part of his tenure.
I think who practises voodoo statistics becomes amply clear when the numbers are seen in the correct perspective. So here goes the historical record on the CPI inflation across last 2 decades (including a few years of a non-descript alliance loosely called as the third front supported from outside by Congress, the entire tenure of NDA under Vajpayee, a complete decade of UPA and 2 years of BJP under Modi):
Official Statistics
Assuming you know the periods of the various regimes during this period, you be the judge on who is practising voodoo statistics.
But this brings me to a different issue of why and how the whole political and economic discourse changed its focus from Wholesale Price Index to Consumer Price Index. One may remember that during those good old days (acche din) of UPA tenure and even before that, all the eyes that cared about inflation tracking used to be focussed on the weekly and monthly publication of WPI inflation. While CPI was very much being published, it was not much talked about. Very surely it was not being used by the policy makers. Most notably, the interest rates and monetary policy of RBI mainly took into account the WPI numbers and the CPI was ignored. So when did it all change? How come the nation is now looking at the CPI of 5.5% and calling it inflationary?
It turns out that something/someone caused this change well in advance (but very much after the opinion polls started predicting) of a change in government and BJP coming to power:
Shifting Goal Post - Rajan Effect!
In simple words, the goal-post was shifted according to someone's convenience. While fixing the repo rates and deciding on the country's monetary stance, the RBI always used WPI in the past. So in other words, the 9-10% interest rates on fixed deposits that the senior citizens and the risk-averse savers got during UPA tenure were bench-marked against a WPI inflation that was slightly lower than these interest rates. Picture this: In December 2009, when the CPI inflation was ruling at 14.97%, these senior citizens were losing money to inflation while they were getting 10% interest.
Throughout the 2 years of Modi regime (both years of failed monsoon and hence probably the worst case inflation scenario), the WPI is in the negative. Had the goal-post not changed for some strange reason, the interest rates would have been at less than 4-5% (at least). On the other hand, had CPI been used as the benchmark, can you imagine what would have been the repo rates in 2009 or 2010 or for that matter in any of the UPA-II years?
PC's Voodoo Statistics!
While reminding the ex-Finance Minister that June 2014 was well within Modi tenure, my intention is not to prove as if the current PM is some kind of a Harry Potter, who just used some wizardry after being sweared into his job and voila' the CPI Inflation came down to 6% levels. The intention here is to show how the Ex- Finance Minister, even when wanting to prove the inflation during his tenure was benign had to pick and choose a best-case number from a month that was not even a part of his tenure.
I think who practises voodoo statistics becomes amply clear when the numbers are seen in the correct perspective. So here goes the historical record on the CPI inflation across last 2 decades (including a few years of a non-descript alliance loosely called as the third front supported from outside by Congress, the entire tenure of NDA under Vajpayee, a complete decade of UPA and 2 years of BJP under Modi):
Official Statistics
Assuming you know the periods of the various regimes during this period, you be the judge on who is practising voodoo statistics.
But this brings me to a different issue of why and how the whole political and economic discourse changed its focus from Wholesale Price Index to Consumer Price Index. One may remember that during those good old days (acche din) of UPA tenure and even before that, all the eyes that cared about inflation tracking used to be focussed on the weekly and monthly publication of WPI inflation. While CPI was very much being published, it was not much talked about. Very surely it was not being used by the policy makers. Most notably, the interest rates and monetary policy of RBI mainly took into account the WPI numbers and the CPI was ignored. So when did it all change? How come the nation is now looking at the CPI of 5.5% and calling it inflationary?
It turns out that something/someone caused this change well in advance (but very much after the opinion polls started predicting) of a change in government and BJP coming to power:
Shifting Goal Post - Rajan Effect!
In simple words, the goal-post was shifted according to someone's convenience. While fixing the repo rates and deciding on the country's monetary stance, the RBI always used WPI in the past. So in other words, the 9-10% interest rates on fixed deposits that the senior citizens and the risk-averse savers got during UPA tenure were bench-marked against a WPI inflation that was slightly lower than these interest rates. Picture this: In December 2009, when the CPI inflation was ruling at 14.97%, these senior citizens were losing money to inflation while they were getting 10% interest.
Throughout the 2 years of Modi regime (both years of failed monsoon and hence probably the worst case inflation scenario), the WPI is in the negative. Had the goal-post not changed for some strange reason, the interest rates would have been at less than 4-5% (at least). On the other hand, had CPI been used as the benchmark, can you imagine what would have been the repo rates in 2009 or 2010 or for that matter in any of the UPA-II years?
