The wholesale price index isn’t the best measure to gauge inflation, certainly not from a consumer’s perspective. But given time lags on CPI (consumer price index), it’s the best we have and for the week ending March 15, we have point-to-point Inflation of 6.68 per cent. Primary articles have 22.02 per cent weight in WPI and within this segment, prices have increased for fruits and vegetables and edible oils. Manufactured products have 63.75 per cent weight in WPI and, contrary to what we might think, manufactured doesn’t mean textiles, paper, chemicals, metals and machinery alone. There is a food products category there too, and again, prices have increased significantly for these. We may not have noticed it. But the Government (industry ministry) revised upwards its earlier WPI figures, such as for the week ending January 19, 2008. Not only is inflation high, it began to increase much earlier. If the government’s inflation target is 5 per cent (it probably was a shade lower), 6.68 per cent should set alarm bells ringing, even if it wasn’t an election year, particularly because food is involved. We don’t have a sensible or comprehensive handle on retail food prices (CPI is unsatisfactory). However, retail prices of fruits, vegetables, wheat, pulses and edible oils have clearly increased more than 6.68 per cent.
India hasn’t seen riots and protests yet, if you leave out protests against ration shops in West Bengal. But there have been riots and protests elsewhere — Mexico, Pakistan, Burkina Faso, Cameroon, Senegal, Mauritania, Argentina, Egypt and even Italy. There is a global problem and those reasons are easy to pin down. First, increased demand resulting from income growth — India and China are the obvious examples, and also factor in urbanisation and more processed foods to this. Second, a switch in consumption baskets towards meat and dairy, which requires more grain as feed (wheat is cheaper than maize). Third, higher Oil prices leading to higher fertiliser and transportation costs. Fourth, climate change cum weather-related supply shocks (tropical cyclones, floods, cold spells, frost) in Australia, Africa, China and Europe. Fifth, subsidies for bio-fuels in Europe and North America (ethanol from maize and sugarcane, bio-diesel from edible oils) diverting land away from food. Sixth, insufficient increases in productivity. After all, the world’s stock of arable land is fixed and population is increasing. Seventh, speculative investments moving away from the dollar and into commodities. Eighth, the mere statistical phenomenon of global food prices usually being quoted in US dollars, spliced with dollar depreciation. Ninth, few governments have sufficient food stocks to warrant intervention. Note most of these factors are semi-permanent. They aren’t transitory, even ones related to weather.
... contd.
