Plus&Minus

"A weekly column: Plus&Minus will be published in Hindustan Times, Jaipur Live. This will speak to the ordinary reader on contemporary economic issues in a simple format".

Inflation Low, but Food Prices Rising
Hindustan Times Jaipur Live, October 05, 2009                             <<Archive>>

By Pradeep S Mehta

About a decade ago, the Delhi assembly elections were lost by the BJP on the price of onions. Today a 75 percent rise in their prices does not appear to make any difference.

For the political class as a whole, food price inflation is no longer an issue to be worried about. It is not an election issue in Maharastra and Haryana where the polls are due in a few weeks. Whether it is the Left or the Right, no one is marching on the streets protesting against rising prices, but Mungerilal and Shantibai are mad because their incomes are overstretched to buy the basic food items.

Their Diwali will also be less sweet because sugar prices have gone up by 43 percent. During late September, vegetable prices have hit a record of 45 percent rise, mainly due to a 75 percent rise in the price of potatoes. Rice prices rose 17 percent, pulses 21 percent, and milk 10 percent.

These increases will vary across cities and mohallas but the fact remains that prices are on an upward climb. The situation is what economists call as hyper inflation, though it is not as bad as the world has seen recently in some countries such as Zimbabwe. There, they are printing trillion Zim dollar notes, because million dollar notes have outlived their utility.

In India, our inflation rate (based on the wholesale price index-WPI) is still low but the food inflation rate (based on the consumer price index-CPI) is high.

There is a disconnect between the two and even the media cannot distinguish one from the other. I wrote about this on June 29 in this column (http://pradeepsmehta.com/Articles-PlusMinus-Inflation_Declines_but_Food_Prices_Rise.htm). Finally, the government has decided to set up a committee to deal with the conundrum.

Finance Minister Pranab Mukherji termed the divergence between the two indices as ‘disturbing’, and rued: “Earlier the trend was that there used to be some convergence between WPI and CPI after 2-3 months, but I am not seeing that now”. Mukherji was referring to the negative WPI inflation prevailing in September, even as the CPI crossed double digits. The government committee will look at better calculation of the two indices.

Many feel that the prices have risen due to increasing demand, spurred by schemes such as NRGEA which have resulted in rise in rural incomes. If our rural brethren are better off, so be it.