Inflation doesn't reflect price rise

Inflation doesn't reflect price rise

Is inflation really going down? These days every morning we read and hear about the “inflation rate going negative.” Yet in the market we all face sharply increasing prices of grocery items and vegetables. These two are just not reconcilable. Are the traders cheating us? Is the government putting up false information about inflation?

In a world of growing population and reduced land, water and other resources, one is yet to find any solid reason for prices to go down over time, though in very short periods of 2-3 weeks that may happen for one or other reasons such as perishability, non-availability of storage or immediate transportation.

Over the last two decades in India agricultural productivities are depleting. The race between price and production is led by the former. With the advent of food processing, use of cold storage and WTO’s regulations, etc, there are other build-in costs, raising the prices further.

The government, putting out Wholesale Price Index as a representative indicator of inflation, is misleading the consumers. WPI, if any, represents an average based on 1,800 wholesale price quotations for about 435 commodities in trade. The commodities include all products, starting from minerals to steel, food items to television sets, tobacco to transport.


The basket includes 98 primary articles, 318 manufactured products and 19 fuel and energy sources as well as lubricants, with respective weights as 22, 14, and 64 percentages. Strangely, the entire basket of food items has a weight of only 15 per cent, whereas all the consumer durables, non-food items and minerals together shine with a weight of over 70 per cent!

Moreover, out of the 435 commodities, almost 100 of them are either no more in trade, or have lost their relative importance in trade, or not in production at all. Some examples are pagers, scooters, country-made liquors, raw food items and so on.

It is an international phenomenon that while the prices of food are going up, that of consumer durables and even some intermediate goods have been going down. No wonder the declining Wholesale Price Index reflects just this.

WPI is announced with a lag of about six weeks. How does it help the consumer? In the past, WPI used to serve some purposes for  investment decisions in a centralised planning system.

What a consumer wants is information about consumer prices on a current week basis. The Labour Bureau releases an alternative price index known as Consumer Price Index (CPI), which is very rarely referred by the government while talking about inflation. These prices also include costs of transportation, storage, marketing, taxes and other charges including retailers’ margins. Hence they are more representative to reflect costs to the consumers. But unfortunately, the delay in CPI announcement is about four months, making it utterly useless as a price warning for consumers.

CPI is compiled for three categories of workers as agricultural workers, industrial workers and rural labourers. Information on consumer prices are being collected from 78 markets spread all over the country. Five such markets from Karnataka are Bangalore, Hubli-Dharwad, Mysore, Madikeri and Belgaum. In this index, food and beverages have a weightage of around 48 per cent, clothings 8 per cent, fuel 6 per cent, and the rest being on miscellaneous items (including medical care, education, transport, etc). These seem to represent consumer purchasing behaviour more accurately. The CPI has been consistently showing strong increasing trend over the months and weeks and in July 2009, it indicated an average inflation rate of 11.9 per cent.

Committees after committees sit over this matter on improving information on price rises, but with very little to recommend or to be implemented. For want of follow up actions, these reports perhaps wait for next reports. Government agencies should realise that if any price information is not transmitted on time or even before time, it has no value, except for official recording.

Country as a whole has over 51 million tonnes of food grain in government stocks, not to mention about additional stocks with private hoarders and stockists. The world prices of food are declining. Therefore, governments can easily venture in to unloading their food grain stocks, and take advantage of declining world prices.

Secondly, we require strong consumer movements, asking for transparency and governance in (i)  public distribution system, (ii) government’s acceptance of true picture on price rises, (iii) both the government and private stockists and distributors declaring their stocks on a weekly basis, and (iv) the follow up actions. The pressure from consumers must be kept up till such time when, BPL card holders get quality food grains, and all other consumers get the food at right prices.

The only other alternative to any failure of state and public administrative actions would be the law or judiciary taking actions hammering the food administration machinery to be answerable to public demands and aspirations.