Reserve Bank of India researchers have successfully estimated state-wise urban inflation for four months during the Covid-19 pandemic when official data was unavailable. According to reports from Business Standard, the study by Purnima Shaw and R K Sinha used household inflation perceptions, three-month-ahead expectations and past inflation data to fill the gap. The estimates were refined using historical forecast errors to account for the pandemic's unprecedented impact on prices. The paper, titled Data Gaps in State-Level Inflation: An Assessment for the Covid Period, examines methods to estimate missing state-wise CPI inflation figures for April and May 2020 and the corresponding months in 2021.
The refined estimates, when aggregated, tracked the official all-India urban CPI inflation series closely, with differences ranging from around 14 to 22 basis points across the four months. As reported by Business Standard, the study uses granular data from the RBI's Inflation Expectations Survey of Households (IESH) to estimate consumer price index (CPI) inflation. The findings highlight the potential of household surveys as an alternative source of information when conventional price collection is disrupted. The paper notes that these State-wise inflation estimates when aggregated, closely follow the all-India official CPI inflation series.
The RBI working paper provides specific state-wise inflation estimates for the Covid-affected months. For April 2020, the aggregated estimate of state-wise urban inflation stood at 7.11%, compared with official all-India CPI inflation of 7.33%. In May 2020, the estimate was 6.57% against the official figure of 6.43%. For April 2021, the aggregated estimate stood at 4.87%, compared with official inflation of 4.71%. In May 2021, it was 5.77% against the official figure of 5.91%. The paper said the refined estimates showed improved performance and closely tracked both the combined inflation of the surveyed states and the official all-India series.
Restrictions on movement and the closure of shops during the pandemic disrupted price collection, preventing the compilation of state-wise CPI indices for April and May 2020. According to Business Standard, while the Ministry of Statistics and Programme Implementation (MoSPI) released imputed all-India inflation figures for these months, state-wise data remained unavailable. The absence of state-level CPI indices for these months also complicated the calculation of inflation for April and May 2021. The Ministry of Statistics and Programme Implementation (MoSPI) could not compile state-wise inflation figures for April and May 2020 because of insufficient price quotations during pandemic-related restrictions.
The researchers flagged limitations in the methodology, noting that household inflation perceptions and expectations may not correspond directly to the CPI consumption basket, while survey centres may not fully represent inflation trends across entire states. As reported by Business Standard, the initial estimates for April 2020 and April 2021 also struggled to capture the direction of inflation accurately, requiring further refinement. The reconstructed figures could help bridge gaps in state-level inflation time series and support future economic analysis, including studies relevant to India's inflation-targeting framework.
