June Retail Inflation Understated, Actual Figures Much Higher: SBI Report

A research report by the State Bank of India (SBI) suggests that the retail inflation numbers for June, released by the National Statistical Office (NSO), earlier this month is "understated" and that the actual numbers should come at a much higher level. Notably, on 13 July, NSO said that June's retail inflation came at 6.09 per cent. The government had suspended the release of headline inflation numbers for April and May and had collected data only for food inflation due to inadequate data collection during two-month long lockdown. 

The SBI report says that due to non-availability of data for a number of sub-groups in the consumer price index (CPI) basket, the NSO "imputed" the numbers by using the last quoted price of a particuar sub-group and scaled up the same by relative increase in the CPI. Contradicting the NSO's method, the SBI report says, "This is a pure statistical exercise by NSO without even understanding the problem that distorts and even underreports the headline CPI."

The report said that it is "irrelevant" to extrapolate the price trends of the overall inflation basket to components such as clothing and footwear, as consumers' demands during the lockdown witnessed a significant change towards such discretionary spends.

SBI's report also mentions a re-adjusted measure for calculating the inflation numbers called the 'SBI Computed COVID CPI', according to which June retail inflation comes at 6.98 per cent, nearly 90 basis points (bps), or 0.9 per cent higher than the government's figures.

The report further says that during lockdown, a large share of total spending moved online which are not accounted for in the data collection used by the NSO. Online prices tend to be higher than physical stores, the report said, adding that accounting for them would further impact the inflation numbers by 10-15 bps (0.1 -  0.15 per cent).