The Hindu Business Line : Inflation breaches 8 pc barrier

THE annual wholesale price index (WPI)-based inflation rate has breached yet another psychological barrier, touching a three-and-a-half-year high of 8.17 per cent for the week ended August 21.

The last time that the year-on-year rate hovered in the eight per cent range was for the week ended February 17, 2001 when it hit 8.49 per cent.

The news of inflation showing few signs of `peaking', contrary to recent official proclamations, comes just a day before the Prime Minister, Dr Manmohan Singh, is scheduled to address a news conference.

This year, between the weeks ended July 3 and August 21, the provisional `all commodities' WPI (base year 1993-94=100) went up by 1.95 per cent from 184.4 to 188.

During the corresponding period last year, the index barely rose, from 173.7 to 173.8.

It is this increase on a virtually static base that has led to the year-on-year inflation rate zooming from 6.16 per cent to 8.17 per cent during the particular reference period.

A redeeming feature for the Government, though, is the fact that the `base effect' would start wearing off in the coming weeks.

The WPI last year went up from 173.8 for the week ended August 23 to 174 in the subsequent week and further to 175.4 for the week ended September 6, 2003.

Even assuming that the WPI would keep rising by 0.4 points each in the coming two weeks - not improbable given that the latest numbers do not factor in the week-long truckers' strike, which started on August 21 - the annual inflation rate would drop to around 7.6 per cent by the week ended September 4.

Moreover, considering that further fuel price hikes may not be required and also that the new kharif crop would begin to arrive in the markets, one can still buy the official line that the eight per cent plus inflation levels are a temporary phenomenon.

So, has inflation then truly peaked, if not for the latest recorded week, at least by the week ended August 28?

Well, one can't be really sure. The reason: the huge discrepancy between the `final' and `provision' estimates of inflation.

As per the provisional estimates, the inflation rates for the weeks ended June 19 and June 26 stood at 5.87 per cent and 6.09 per cent, respectively.

But according to the latest final figures, the actual corresponding rates were 6.62 per cent and 6.95 per cent.

In fact, the `final' WPI for the week ended June 26, at 186.2, was way above the `provisional' estimate of 184.7.

What this implies is that the eight per cent inflation barrier may have been crossed by the third week of July itself.

And if the 1.5-point gap seen between the final and provisional WPI estimates is accounted for, the actual inflation rate now could indeed be closer to nine per cent.