ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Issues in Measurement of Inflation Targeting

The current practice of measuring the inflation rate from fixed base weight index is outdated and likely to overstate inflation substantially compared to the chain weighted index used in developed countries. Similarly, the treatment of house rent allowance revisions to estimate the housing Consumer Price Index also significantly overstates the headline inflation. Economy-wide inflationary expectations also need proper measurement. Inflation-targeting framework without proper measurement of inflation rate can involve very high real costs and make the policy counterproductive.
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