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Inflation rate touches 6.58%

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Highest level in over two years

Harish Damodaran
Anil Sasi

Inflation woes


This is

the first time that the official year-on-year rate has crossed the 6.5 per cent level since December 11, 2004, when it hit 6.84 per cent.

The current

WPIs for diesel (465.8), electricity (274.7) and petrol (253) are much higher than the general all-commodities index of 208.8, which means their base levels were already very high.

New DelhiFeb. 9The annual wholesale inflation rate has touched 6.58 per cent for the week ended January 27.

This is the first time that the official year-on-year rate has crossed the 6.5 per cent level since December 11, 2004, when it hit 6.84 per cent.

That makes the current level the highest in well over two years.

For the common man, that may not sound very surprising, given that inflation is truly pinching his pocket now. Moreover, it is probably the single-most dampener to the Centre's claims of the economy experiencing its most buoyant growth phase in recorded history.

What is surprising though is how the official wholesale price index (WPI)-based inflation rate has remained within two digits, when the ordinary consumer has been complaining about a doubling or even trebling of prices in most essential commodities.

On reason, of course, is that the WPI-based inflation figures released every week do not capture what is really happening at the retail end. But even the WPI numbers do reveal the `actual' inflationary trend, if one isolates articles of common consumption from the rest. This, in a way, is necessary, considering that the WPI is a hotchpotch that does not differentiate essentials like pulses or edible oils from felspar and purified terephthalic acid.

The accompanying table shows the rate at which wholesale prices have gone up year-on-year in respect of some 18 items that can be identified as important from the consumer's direct point of view. In seven out of the 18 - wheat, pulses, fruits, edible oils, cement, steel and timber wholesale inflation levels are way above 10 per cent. In another three milk, vegetables and eggs these are bordering on the double-digit mark.

In the case of three crucial energy items petrol, diesel and electricity the inflation rates are technically low now.

But these conceal a legacy factor. The current WPIs for diesel (465.8), electricity (274.7) and petrol (253) are much higher than the general all-commodities index of 208.8, which means their base levels were already very high. The apparent low rates of increase in these items, thus, have little relevance for the consumer, though it does help reign in the overall inflation figure. The nil inflation in LPG is of course because its prices have not been revised by the Government.

Sugar Prices

The real success story for the Centre has been sugar, where prices have been on a downward spiral ever since the decision to ban exports in July. The WPI for sugar has, in fact, declined by 9.2 per cent over the last year. And since sugar, for some strange reason, enjoys a higher weightage in the general WPI than diesel, petrol and cement, it has played some part in subduing the overall inflation figure.

(This article was published in the Business Line print edition dated February 10, 2007)
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