Inflationary expectations, damned lies & statistics

With the September 11 inflation rate now at 9.72% (vis-à-vis 9.78% in August), there are fears of a rate hike. In fact, recent speeches by RBI have added to an apprehension that the apex bank will continue to hike rates even in the October 25 policy. Without getting into the rate hike debate, in this article we would like to raise our concerns regarding (a) the debate on inflationary expectations and (b) too much reliance on statistical artifacts by the market and RBI in its successive monetary policy statements.

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