RBI's review to improve inflation includes data from food delivery and online taxi aggregators
RBI: In the December Monetary Policy Committee meeting, the growth figure for 2024-25 was revised from 7.2 percent to 6.6 percent. The inflation rate estimate was raised from 4.5 to 4.8 percent. The government's estimate went even lower than that.
RBI Governor Sanjay Malhotra has started reviewing all the tools to reduce the errors in inflation and growth forecasts. He has held several meetings with his team to determine if there is any error in the earlier estimates.
In the December Monetary Policy Committee meeting, the growth figure for 2024-25 was revised from 7.2 percent to 6.6 percent. The inflation rate estimate was raised from 4.5 to 4.8 percent. The government's estimate went even lower than that. The country's gross domestic product (GDP) growth unexpectedly fell to 5.4 percent in the July-September quarter. Inflation rose again in November.
As per Amar Ujala Sources, the old estimation tools and methods have been reviewed on whether to continue them or withdraw them. Malhotra, who took charge in December, has also asked RBI's internal teams to include new datasets, analysis, and estimates in inflation and growth forecasts. This review comes amid increasing scrutiny of the central bank's growth and inflation estimates, which have been out of target for most of the current financial year. Especially the growth forecast has been much weaker than expected and inflation has been higher than the target.
As per Amar Ujala's Sources, RBI will consider increasing the dataset needed to measure income and spending trends better. For this, data from food delivery apps and online taxi aggregators can also be included along with the trend of small digital payments. Details of various components of fuel use can also be added to assess retail and industrial activity.
Malhotra works more on data. Now he wants to curb RBI's forecast errors on both inflation and growth. RBI wants to expand the data collected on the informal economy, which can currently lead to errors in accurate estimates.
Machine learning tools will be used to prevent price fluctuations in volatile items like food to improve inflation estimates. RBI's forecasts on inflation usually go wrong because food prices are quite volatile. RBI relies on wholesale market data, which leads to errors. The impact of whatever changes will be made can be seen in the policy estimates for February.
