The Hindu Business Line : The poor pay a high price

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Chennai March 6 Consumer prices for low-end consumers have risen two per cent more during this fiscal than wholesale prices, according to the Economic Survey for 2006-07. Prices for agricultural labourers rose by an annualised 7.2 per cent over the period April-December 2006, while the price rise for rural labourers at 6.9 per cent was only a little lower.

Since 2001, these two groups, accounting for about 50 per cent of total population, had to contend with annual increases ranging from one per cent to 3.9 per cent. The average for 2001-2006 was 2.9 per cent per annum, for both agricultural and rural labourers.

This gloomy and hitherto relatively neglected aspect of rising prices makes it harder to be cheerful that, according to the Survey, wholesale prices rose only 5 per cent between April and December this year, on an annualised basis. Or that, judging from the experience of FY 2005-2006, when the annualised price rise from January to March 2006 was half a percentage point lower than the 4.4 per cent rise for the year as a whole, the price rise for 2006-2007 too will be lower than the 5 per cent rise recorded so far.

But agricultural and rural labourers will derive no comfort from this.

The reason for the striking difference between the behaviour of wholesale prices (which have risen at about the same rate as over the past five years), and consumer prices for agricultural and rural labourers (which have risen twice as much as they previously did) is that the annualised rise in food prices from April to December 2006 has been well above 7 per cent. This makes little difference to the wholesale price index, since food has a weight of less than 20 per cent in that `basket', but it matters a great deal for agricultural and rural labourers, who spend more than 40 per cent of their money on food.

To make things worse, point-to-point prices for the two groups have at times risen by as much as 20 per cent. Unlike occasional point-to-point highs in wholesale prices, this peaking of consumer prices has serious implications. These people cannot stockpile food when it is cheap. For them, it is pretty much a case of hand to mouth.

Finally, since serious price increases have been taking place in only in one small sector of the economy (manufacturing, accounting for 63.75 per cent of the wholesale `basket' witnessed an annualised price increase of only 3.8 per cent), monetary policy, which impacts on the economy as a whole can do little to give relief where it is most needed.