A. Srinivas

Bangalore, Jan. 10 Despite the decline in overall inflation in recent weeks, primary product prices, which account for a total of 22 per cent in the wholesale price index, remain firm as ever.

At 11.59 per cent for the week ended December 27, 2008, primary products inflation has been ruling at above 8 per cent since the week ended February 23, 2008.

While non-food articles (with a WPI weight of 6 per cent), chiefly oilseeds and fibres, led the increase in primary products between December 2007 and August 2008, food article inflation (with a WPI weight of 15 per cent) has hardened since then.

This is despite the fact that the monsoons were good and oil prices have dropped from about $140 a barrel in July to about $50 now.

Besides, world commodity prices have fallen from their July peaks, with investors unwinding their positions after the outbreak of the sub-prime crisis. Are we to assume then that the current food price rise due to an endemic demand-supply gap and are here to stay?

The inflation in primary goods this fiscal is different from the 2007-08 episode. Mr R. Sthanumoorthy of the Indian Institute of Management, Kozhikode, points out in an article in Economic and Political Weekly (October 4, 2008) that the ‘average’ WPI inflation in food articles was just 5 per cent between December 22, 2007, and August 16, 2008, whereas in the case of non-food articles it was 13.5 per cent.

As a result, the average inflation in primary articles was 8.79 per cent during this period. But now, the gap between the two has narrowed — for the week ended December 27, food article inflation was 9.95 per cent, while non-food article inflation was 11.2 per cent. The former has risen since December 2007 whereas the latter has fallen. If the primary articles rise was 11.59 per cent, it was on account of 40 per cent inflation in the third sub-group, minerals, which accounts for a weight of 0.48 per cent in the WPI.

Provisional monthly indices for October 2007, the latest month for which such indices are available, point out that food article inflation has been hardening in recent months, despite the fact that the prices generally soften during winter. It was 8.84 per cent in October (one percentage point less than in December), whereas prices of non-food articles were up 11.8 per cent.

During April-October 2008-09, fuel and manufactured items notched up a rise of 13.8 per cent and 10.1 per cent, a situation that does not obtain now.

Within food articles, foodgrain (5 per cent in WPI, comprising cereals and pulses) prices were up 9.2 per cent in the week ended December 27, while pulses were up 13.9 per cent. Fruits and vegetables prices (2.9 per cent in WPI) were up 16.9 per cent. Milk prices were up 6.2 per cent and eggs, meat and fish 7.6 per cent.

While cereals inflation will hit the poor hardest, as it is the single largest component in their food basket and cannot be substituted by anything else, the rest may move away from pulses, fruits and vegetables to meat, eggs and milk if these price trends persist.

If foodgrain prices have been hardening since the end of 2006-07 despite the absence of the obvious supply-side pressures, it is perhaps because production is not keeping pace with population and demand.

Per capita net availability of cereals and pulses in India has stagnated at about 450 gm per day over the last decade, against about 475 gm a day in the mid-1980s.

Gross cropped area under cereals fell from 103.2 million hectares in 1990-91 to 100.2 million hectares in 2006-07.

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