WPI fails to catch high food rates

Prices of key food items like mustard oil, milk and rice have risen 6-17 per cent in the last one year. This challenges the general belief that inflation has been low in recent months.

The wholesale price index (WPI) inflation rate slipped from 5.16 per cent for the week ended December 2, 2006, to 3.75 per cent for the week ended December 1, 2007, well below the government's target of 4-4.5 per cent.

Among the food items, the biggest rise is evident in milk, whose prices have moved up by 17.64 per cent (Rs 17-20 a kg) and in mustard oil, which is 13.79 per cent more expensive (Rs 58 to 66 a kg). Rice has become more expensive by 6.66 per cent from Rs 15-16 a kg. 
 

HEADED UP
Commodity  Price in Rs/kg as on	Dec 14 2006	Sep 14 2007	Dec 14 2007
Milk	17	19	20
Mustard Oil	58	62	66
Rice	15	15	16
Gram	39	34	36
Sugar	20	16	17
Wheat	12	12	12
(Prices are for Delhi) Source-Price Monitoring Cell, Department of Consumer Affairs, Government of India

Sugar and gram (chana) prices, though lower than the year-ago period, are higher than three months ago. The price of sugar has risen due to a delay in crushing by mills in Uttar Pradesh. Only wheat prices have remained stable at around Rs 12 a kg.

High food prices can cause social unrest as these hurt the poor the most as food accounts for a larger proportion of their total expenditure.

But these rising prices are not reflected properly in the inflation data because the weight of these commodities in the index is small.

"The primary articles group (which includes food items) has a weight of just 22.02 per cent and therefore a slow rise in prices under the manufactures articles group (with 63.75 per cent weightage) ensures that the overall WPI remains low," said Shashanka Bhide, senior fellow, National Council for Applied Economics and Research.

Milk has a weight of 4.37 per cent in the WPI while sugar carries a weight of 3.52 per cent (this is contested by the sugar industry, which claims the figure to be much lower), rice (2.45 per cent), edible oil (2.76 per cent), wheat (1.38 per cent) and pulses (0.60 per cent).

It is often argued that WPI does not reflect true inflation because it takes into account only wholesale prices. But even the consumer price index (CPI) data, for the period between December 2006 and October 2007 (the last available data), do not show the true picture.

During the period, the CPI number for industrial workers has moved up by 5.51 per cent (from 127 to 134 points), while the movement for agricultural labourers and rural labourers has been 5.89 per cent (390 to 413 points) and 5.62 per cent (391 to 413 points), respectively.

Prices of most items have been moving up due to supply-side constraints.

For example, rice output in 2006-07 was estimated at 92.76 million tonnes, marginally up than the 91.79 million tonnes in 2005-06. In the same year, mustard output declined 14.5 per cent, from 8.13 million tonnes to 7.10 million tonnes.

Looking forward, the prices of commodities like rice and mustard oil are expected to go up. However, a declining trend is expected in sugar with another record production, while wheat is expected to become cheaper in April.