Food inflation soars, at 15.6%

The intertwining of agriculture and politics has usually meant that farmers and the consumers, especially those at the margin, suffer from government action or inaction. Food prices have been rising for a long period, at least a year, and show no signs of abating.

Today, the government announced the wholesale price index data (WPI) for the week ended November 14.

Primary Group
Primary inflation has risen to 11.04% during the week, compared to 9.94% in the previous week. A year ago, this week, inflation was 12%. There is no low base effect at play here.

  • Food prices are the main reason, rising by 1.6% over the previous week. Prices of key commodities like wheat, milk, poultry products, vegetables, fruits and dal have all risen. Over a year ago, inflation in food was 15.6%.
  • The increase in non-food products was relatively modest at 0.3%, due to higher prices of silk, fodder, cotton seed and groundnut seed.
  • This group has a weight of 22.02% in the overall wholesale price index.

Fuel Group
The index for this group was unchanged from the previous week, and inflation remained steady at -1.51%. This group has a weight of 14.23% in the overall wholesale price index.

Inflation in the year so far
The government also gives a build-up inflation figure, which indicates how much inflation has been seen in this fiscal, so far, over the previous one. This gives a more informed view, compared to analysing a week’s data in isolation. In 2009-10, build-up inflation in primary goods is 12.3%, for food it is 17.3%, non-food goods is 5% and fuel is 7.4%.

The government has changed its method of reporting inflation, with primary goods and fuel data released on a weekly basis. Industrial products’ inflation data is given on a monthly basis. When the data for manufactured products comes out, it is difficult to imagine any other outcome than an increase in inflation.

The RBI has been concerned with inflation and this recent round of data should only serve to heighten those concerns. The government is ensuring it does nothing to exacerbate the situation by rolling back the fiscal stimulus, as that will result in a sharp jump in inflation. Inflation trends in the next few months will set the tone for how the RBI acts to bring down inflation. This situation is what economists call a supply side issue –basically lower output leading to higher prices. But it could have a ripple effect on other prices too, which the RBI may want to keep a lid on, before things get out of control.

Comments are closed.