Food Prices Biting Hard

Food prices biting hard By Mohit Satyanand 27 August 2009 Inflation is beginning to reassert itself in India. Though the headline numbers compare price levels with those of a year ago, it is also instructive to look at movements in the Wholesale Price Index (WPI) for the period since early April. For all commodities, the latest price figures show that the WPI has moved from 229.7 to 238.8 in the 19 weeks since early April. This is a price rise of 4%. On an annualized basis, this works out to 10.8%. If one were to look at food articles only, the price rise is a great deal more substantial, with the WPI surging from 248.6 in early April to a current level of 270.3. The rise of 8.7% works out to an annualized level of roughly 24%. These are scary numbers. For a landless farmer, or a pensioner, the surge in food prices bites hard; and with the drought a reality, early relief looks unlikely. Government plans to augment Public Distribution will work only on a few items, like food grain, sugar and kerosene. Pulses, the main protein intake for most Indians, are now exorbitantly priced, and vegetables are fast become a luxury for the poor. Meanwhile, the privileged employees of our government apparatus are set to receive the ‘arrears’ of the wage hike they granted themselves by way of the Sixth Pay Commission. This will add both to inflationary pressures, and to the deficit of the government. The continual borrowing by the government is exerting pressure on long-term interest rates, which last week surged to 7.3% for the 10-year government bonds. If inflation continues to mount, investors will seek to protect themselves with even higher interest rates, which is going to slow our recovery.