The Hindu Business Line : Drop in inflation rate

The financial press has played up the reported "fall" in inflation rate to 7.94 per cent for the week ended August 14 from 7.96 per cent in the previous week.

It is even claimed by some that the anti-inflationary measures initiated by Government have started bearing fruit! This is funny for more than one reason.

In the first place, the decline is too small to crow about. Secondly, it is to be seen in relation to the high level of prices a year ago. It means further difficulties for millions of people whose incomes did not rise enough to compensate for the inflation.

Thirdly, because some centres do not provide the data in time, the Ministry compiling the Index Number of Wholesale Prices repeats the previously reported ones in its calculations. Subsequently, when they become available, the Index is revised.

This is a regular process and the direction of correction is generally upwards. For example, the rate of inflation has been changed steeply from 5.87 per cent to 6.62 per cent for the week ended June 19, 2004. With the passing of time, no one bothers about it! We may expect an upward revision in the latest data also after a couple of months. Fourthly, and most importantly, the average rate masks the disturbing factor of a substantial rise in prices of some core items, for example, 11 per cent vegetables and 8 per cent for beef.

The authorities and economists may give elegant explanations for the problem but that does not diminish the hardship suffered by the common man.

A. Seshan

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