Food group up 19%, non-levy sugar 66%

Beating even the most optimistic forecasts, annual rate of inflation based on the wholesale price index soared to 8.56% in January 2010; a month ago, it ruled at 7.31% and a year ago at 4.95%.

The inflationary fire was largely stoked by primary articles, especially food articles and was exacerbated by a spurt in the index for both fuel and manufactures.

In its third quarter review of the credit policy, the Reserve Bank of India had revised the headline inflation to 8.5% by end-March 2010, with an “upward bias”. This expectation has been two months earlier and it is a safe bet that the current fiscal year may end with a double-digit inflation rate.

With the cash reserve ratio already jacked up and the budget round the corner, it is unlikely that the Central bank will initiate any measure at this juncture to tame this monster. Further, in the current scenario when supply-side jerks are the prime mover behind inflation, any tinkering with monetary policy may not be of much help as the impact will be felt only with a lag. Thus, no respite from rising prices is likely in the near term.

From the common man’s point of view, the movements in the price indices of wage goods are alarming. Food articles as a group has hardened by 17.43% over the twelve months ending January 2010 and food products by a whopping 22.57%. In effect, the composite index for the food group, incorporating both the above sub-groups, has become 19% higher now than what it was a year ago. Only in edible oils, the price situation is comfortable, with the index now lower by 1.15% lower than in January 2009. But, with oilseeds up by more than 10%, the easy sentiment in edible oils is a sequel to considerable imports that have restored a degree of parity between supply and demand.

In primary articles, the point-to-point inflation was 14.52% in January as against the year ago figure of 10.69%; in fuel group, the index had firmed up by 6.9% mainly on account of a flare-up in naphtha whereas this group had witnessed a decline of 1.7% during the same month of the last fiscal; in manufactures, the inflation rate had accelerated to 6.55% from 5.27%.

Pressure on supplies in food items - both primary and manufactured - is exerting an upward pull and their prices are spiraling. In the case of free sale sugar, the wholesale index has leaped from 165.2 in January 2009 to 274.9 now or by a whopping 66.4%.

Over March 2009, the sweetening agent has become costlier by 53.06%. In fact, during the span of a mere month, the jump in sugar has been of the order of 7.89%.

In the case of cereals, which as a whole, has spurted by 13.7%, the prices of coarse grains are on an upward trajectory; index for bajra is up by 31.5%, ragi by 27.4% and jowar by 15.4%.
Superior cereals are also in a bull grip, with wheat dearer by nearly 15% and rice by 12%. In pulses, the wholesale index has zoomed by 45.64% in January 2010 compared with a year ago and in condiments & spices by 31.9%.

In potatoes and onions, though some respite is seen in January as compared to the preceding month, still, their prices are shooting up - as of now, the index for potato is 53% higher than the year ago level and for onion it is 8% higher. Milk is up by 13.99% and cotton textiles by 11.14%.
The economy is clearly reeling under the inflationary onslaught. As recently as August 2009, the WPI-based inflation rate was negative (-0.17%).

Prior to this also, the price situation was benign characterised by a subdued trend in the index. But, as monsoon proved to be disappointing, dealing a big blow to kharif hopes, the tide began to turn. September saw a modest jump of 0.46% in the inflation rate; thereafter, the price fever took a more ominous turn with October witnessing a surge of 1.46%, which galloped to 5.55% in November and to 7.31% in December.

In January 2010, there was further deterioration in the price situation with the year-on-year inflation climbing to 8.56%. If this trend is sustained - and indications are that it will be - brace for inflation rate to soar past the 10% mark this month itself.