Rating agency Crisil Research released an alternative measure of core inflation - Crisil Core Inflation Indicator or CCII - to capture demand-side pressures on prices.
Crisil believes that CCII is a better indicator of underlying demand pressures on prices better and is more stable than the existing core inflation measure - non-food manufacturing inflation.
The agency said the index can supplement the existing indicators that influence the Reserve Bank of India or RBI's interest rate decisions.
The agency will release the CCII every month using WPI data published by the Ministry of Industry and Commerce.
Crisil said, "Our forecast shows that CCII will drop to around four percent in 2012-13 from nearly seven percent in 2011-12". This decline creates an environment conducive for interest rate cuts, though its timing and quantum will also depend on other factors such as oil prices and the government's actions towards fiscal consolidation.
RBI, which is scheduled to announce the annual credit policy on April 17, has increased interest rates 13 times since March, 2010 to rein in inflation. Inflation which remained high during most of 2010 and 2011 has started showing signs of moderation in the recent months.
The government releases WPI based inflation on a monthly basis, in addition to the Consumer Price Index (CPI) based price figures.
CCII includes processed food and metal products to take into account the second-round of impact of supply shocks and it excludes base metal prices which are directly influenced by international prices, Crisil said.
A good core inflation measure should exclude the impact of temporary movement in overall inflation, the rating agency said. CCII, excludes this component in its calculation, it added.
by RTT Staff Writer
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