The Government and the RBI have been telling us that rising prices of fruits, vegetables, milk, eggs, fish and meat merely reflect the large and welcome increases that have been taking place in rural incomes.

To flesh out this proposition, one can begin by comparing the growth in the consumption of these items in recent years with growth in the past.

But straightaway one runs into a problem.

As expected, the CSO figures on private final consumption expenditure indicate a large rise in the compound annual growth rate (CAGR) of consumption of fruits and vegetables between the two periods, 1993-2002 and 2004-2009. But there is a totally unexpected slowdown in the consumption of milk, eggs, fish and meat.

Nominal growth

The rising demand for fruits and vegetables was met with increased supply. But increased demand for milk, eggs, fish and meat led, instead, to a rise in prices. Nominal growth increased for all three food-types, but the break-up varied.

For fruits and vegetables, consumption speeded up and prices slowed down, for milk, meat, fish and eggs, it was the other way around.

The increased inflation was large for milk (6.19 per cent over 1993-2002 as compared to 7.92 per cent over 2004-09), and even larger for eggs, fish and meat (from 6.45 per cent to 10.26 per cent).

In the face of such hefty differentials, one cannot help wondering whether costs went up, for these two groups, or only prices?

Published on July 7, 2011