WPI inflation at -1.17%, but food prices on fire

WPI inflation at -1.17%, but food prices on fire
The Economic Times, July 24, 2009, Page 11

Our Bureau NEW DELHI/MUMBAI

WHOLESALE prices fell year-on-year for the sixth consecutive week, even as a week-on-week increase in the prices of mass-consumption food items such as pulses, fruit, potatoes and rice pushed up household grocery bills.

The annual rate of inflation based on the wholesale price index (WPI) stood at -1.17% for the week ended July 11, according to data released on Thursday, but there was no let-up in inflationary pressure on primary food articles, which saw a price hike of 90 basis points over the previous week.

In fact, ET calculations show that grocery bills have increased by almost 9% since January, prompting some experts to warn that it will soon impact consumer spending on less essential products.

“As these (grocery) are all essential items, one cannot cut expenditure on the same, though their prices are rising,” said Yashika Singh, economist of Dun & Bradstreet. Instead, expenditure on consumer durables, entertainment and traveling, which are discretionary in nature, could be reduced, she said.

Indranil Pan, chief economist with Kotak Bank, however, does not see a significant shift in the consumption pattern. He agreed that increasing grocery bills would affect the middle and lower income strata of society in terms of reduction in purchasing power, but said there won’t be a significant shift in consumption patterns.

“The stimulus in the form of arrear payments and salary increases due to implementation of the Sixth Pay Commission, increase in minimum support prices and loan waiver for farmers, and reduction in surcharge on income tax will increase the disposable income in the hands of lower and middle income groups,” he pointed out.

Pronab Sen, chief statistician of India and secretary in the ministry of statistics and programme implementation, attributed the rise in food prices to speculation in the market to a considerable extent. “The moment it is known that the monsoon may go off track, speculation starts in the market. Food price inflation, therefore, starts before monsoon,” he said.

DK Joshi, director and principal economist at rating agency Crisil, cited poor production of pulses and cereals as the reason for food items becoming costlier.

The more than one percentage point upward revision in annual rate of inflation for the week ended May 16 to 1.65% from the originally reported 0.61% indicated that inflation may come out of the negative zone quicker than expected. Also, inflation for the June 11 week was marginally above -1.21% in the previous week, although it was sharply lower than the 12.13% rise recorded in the corresponding week a year ago.

The May revision and the week-onweek increase show that even though the annual rate of inflation remained negative, inflationary pressures were building up.

“I think inflation may remain in the negative territory for about a month before turning positive,” said Mr Joshi.

In fact, retail inflation as measured by the food-heavy indices for rural consumers, CPI-Al and CPI-RL, has already crossed into double digits and was placed at 11.52% and 11.26%, respectively, for June 2009.

According to Mr Sen, inflation tends to get exaggerated or underestimated depending on the direction it is moving. “That is because of the way data is collated and estimates are prepared. The first estimate is prepared based on whatever information is available to date and later the number is revised. Therefore, if inflation is accelerating, the number tends to get underestimated while in a scenario where inflation is decelerating, the number gets overestimated,” he told ET.