Inflation hasn’t peaked yet, warn govt officials, experts

Inflation hasn’t peaked yet, warn govt officials, experts
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First Published: Thu, Apr 10 2008. 12 04 AM IST

Updated: Thu, Apr 10 2008. 12 04 AM IST
New Delhi: Even as a worried government steps up efforts to battle it, government officials and experts admit that inflation in wholesale prices, which touched 7% for the week ended 22 March, could continue to rise—for at least a few weeks.
The government, which has been engaged in several rounds of internal discussions, including a meeting of the committee of secretaries, or CoS, headed by cabinet secretary K.M. Chandrasekhar on Tuesday, and another meeting chaired by finance minister P. Chidambaram on the same day, is particularly concerned about the fact that the current spurt in prices comes on the back of a similar peak at the same time last year.
Wholesale inflation is measured by comparing the WPI, or wholesale price index, for the week in question with the corresponding week a year ago. High inflation can sometimes be explained by the base effect, which means the WPI for the week in question a year ago was very low, translating even a modest WPI in the corresponding week this year into a high inflation. A peak-on-peak increase means the current spike in inflation cannot be explained thus.
Speaking after the meeting called by the finance minister, steel secretary R.S. Pandey said: “Various measures to monitor steel prices were discussed.” High prices of cement and steel are part of the reason for inflation.
A matter of additional concern is the fact that bad weather may set back estimates of the rabi, or winter crop, harvest, particularly of wheat. The CoS meeting on Tuesday, which pegged this year’s procurement target, or the amount of grain the government plans to acquire to feed the public distribution system, at 15 million tonnes (mt), also assessed the damage caused by recent unseasonal rains and frost in six states. The CoS came to the conclusion that although the wheat crop had taken a hit in several states, rice had not.
According to government officials, Union government teams have been sent to Tamil Nadu, Kerala, Andhra Pradesh, Rajasthan, Punjab and Haryana to assess damages. In Rajasthan and Haryana, as much as 600,000 tonnes of mustard seed is expected to have been damaged by frost.
The buffer stock norms set down by the government require that as on 1 January total stocks with it should aggregate 20mt: 11.8mt of rice and 8.2mt of wheat. In aggregate terms, the stocks as on 31 January (the latest available) were 20.4mt, but rice accounted for 13.71mt. This means wheat stocks on that date were lower than prescribed norms by about one-fifth at 6.69mt.
“There are continuing inflationary worries on account of global prices. The situation will be manageable only if the procurement target for wheat this season is met,” said a government official who did not wish to be identified.
Experts share similar concerns. “The rise in prices of food commodities all over the world is not going to ease in the short term in view of the supply-demand situation,” Jacques Diouf, director general, United Nations’ Food and Agriculture Organization, or FAO, said in New Delhi on Wednesday.
According to D.K. Joshi, of Crisil, inflation is truly worrying as it is over a high base and inflationary pressures are likely to continue on account of volatile global prices for a range of commodities such as crude oil, wheat and coal. “There is also latent or suppressed inflation since the effect of rising crude oil prices has not been passed on,” he added.
“This is the first time in India that we are facing the problem of unseasonal rains when we are already facing supply-side constraints. Given that the stocks are depleted, it may also not be a bad idea to prohibit the private sector from procurement operations for a while,” said C.S.C. Sekhar of Institute of Economic Growth.
Sekhar added that the government would need to wait till the end of April to know the extent of damage, especially in the case of wheat.
“We will have a clear idea of the extent of loss only after the teams sent to the states return later this week,” a senior official in the agriculture ministry said. Another government official familiar with the matter, who too did not wish to be identified, said crop damage could also be discussed during the next meeting of the cabinet committee on prices.
“There are not many measures that you can take when the problem is unseasonal rains,” added this official. The damage to wheat has been nominal in Punjab, he added.
“There have been some pockets in the southern states where there has been extensive damage. However, since rabi contributes lesser than kharif (the summer crop), there will not be any major effect on supply,” said another government official.
Shamsher Singh Surjewala, chairman of the Congress party’s Kisan and Khet Congress, said that while it was too early to estimate the extent of damage, there was bound to be some impact on supply and, therefore, prices.
Vinod Pandey, president of the Bharatiya Janata Party’s Kisan Morcha, said the government should compensate farmers who had suffered on account of the rain. “It has become a standard practice for the government to announce a record harvest even before the season begins. And when the procurement falls short...the government cites it as justification for imports at a higher price,” he added.
Pandey dismissed suggestions of a linkage between supply deficit and the increase in prices of food articles: “If grapes are sold at Rs10 a kg by the grower and bought at Rs45 a kg by the consumers, it is not the grower who is responsible for the end price but the middleman.”
Rupchand Pal, a Lok Sabha member from the Communist Party of India (Marxist) and a member of the parliamentary standing committee on finance, said even if the recent rains had hit supply to an extent, the Union government couldn’t cite that as an excuse for its inability to contain inflation because “the damage can at worst be marginal.”
“Speculative trading in the futures market and the dismal state of the public distribution system remain much bigger concerns.”
PTI contributed to this story.
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First Published: Thu, Apr 10 2008. 12 04 AM IST
More Topics: Inflation | Rain | Wholesale prices | Steel | Wheat |