Such success is suspect

Such success is suspect
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First Published: Sat, Feb 03 2007. 01 11 AM IST
Updated: Wed, Jan 09 2008. 12 31 PM IST
Exhibit one: prices of many food items are currently 10% higher than they were last year, compared with the more modest 5.6% inflation in the prices of manufactured goods. The prices of condiments and spices are up by 38%. Ouch!
Exhibit two: the government announced this week that farm output grew by 6% in 2005-06, far higher than the 3.9% assumed earlier. This was the main reason the GDP growth rate for that year was revised, from 8.4% to 9%.Are the two facts related? Ideally they should be. Higher farm output would have meant that the prices of stuff like cereals, pulses, fruits, vegetables and condiments would have been muted because larger supplies came into the market around this time last year. So, a low-base effect can be seen as one explanation for the rise in the inflation rate in recent weeks.Still, this is not a reason to relax, because the further possibility is that this year’s farm output could be lower than we assume.Or are the new GDP numbers for 2005-06 suspect?
Figuring out the state of the economy when the numbers keep changing is a good sport, but makes for bad analysis.
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First Published: Sat, Feb 03 2007. 01 11 AM IST
More Topics: Economy | GDP | Farm output | Inflation | Agriculture |