Food inflation is cause for concern

There are disconcerting trends on the inflation front, with wholesale prices in India rising to a 13-month high of 1.2 per cent in April, from 0.53 per cent in March, mainly because of an uptick in food inflation and an year-on-year rise in fuel and power prices.

The Wholesale Price Index (WPI) rose on an year-on-year basis for the sixth successive month in April. Though retail inflation marginally eased for the second month to 4.83 per cent, food inflation made a sharp increase to 8.70 per cent from 8.52 per cent  in March.

There was a general increase in the prices of all food items. Rice was 14.3 per cent dearer and wheat prices increased by 6.4 per cent year-on-year. The prices of vegetables and pulses rose by 27.8 per cent and 16.8 per cent respectively. Potatoes and onions reported a sharp surge of 72% and 59.8 per cent respectively, from 53 per cent and 57 per cent in March.

A more worrisome aspect of inflation is that both food inflation and the broader headline inflation showed bigger increases in rural areas. The Consumer Price Index (CPI)-based inflation was well above the 5 per cent mark at 5.43 per cent, while inflation in urban areas was a lower 4.1per cent. Rural inflation has been higher than urban inflation for months, and this has particularly hit the rural hinterland which is poorer than the urban areas and so will be more affected by price increases, especially food price increases.

Rural income used to give support to businesses with demand for consumer goods and even to industry related to agriculture. With the double whammy of rural incomes falling or stagnating and inflation reducing the purchasing power of the rural community, the present trend will have implications for the overall economy as such. 

Last year’s weak monsoon and the hot summer months that followed hit agriculture production, and that is showing in the prices of food items. The heat wave is continuing in many parts of the country and so prices are likely to stay high this month also.

A moderation in prices is expected only if the next crops of all produces are good, and this will depend on a good monsoon. A normal monsoon has been predicted for the current year and that will hopefully have a positive impact on prices. Food items account for a major part of the consumer price index and can therefore influence the inflation rate. The Reserve Bank of India (RBI) is still struggling with inflation, trying to bring it down to below 5 per cent. Food inflation particularly affects the household budgets of all people, and hurts the poor much more than others.