Low WPI last year to deflate govt's price possession
Just as the government’s anti-inflation measures begin to kick in, a statistical phenomenon is all set to rob it of any credit for holding the price line.
By Neelakshi Rana, TNN |
NEW DELHI: Just as the government���s anti-inflation measures begin to kick in, a statistical phenomenon is all set to rob it of any credit for holding the price line. From April through June last year, the wholesale price index (WPI) moved very little - 211.5 on April 7 to 211.9 on June 16. Inflation is the change in the price index this year from the level of the index on the comparable date last year. What a flat price index last year means is that even a tiny rise, week-to-week, in the index in April-June this year will translate into a high level of inflation.
Experts are of the view that this low base effect will negate the impact of a price cut in some commodities and other fiscal measures taken by the government.
Ministry of statistics and planning implementation (Mospi) secretary Pronab Sen said: ���From April onwards, the high base effect would cease to exist. This means that the WPI for the week in question a year ago was very low, which would translate even a modest WPI rise in the corresponding week this year into a high inflation rate.���
Thus, despite factoring in correction in prices of some commodities such as edible oil on which duties have been cut, inflation may surge further, he said.
Crisil principal economist D K Joshi agreed. ���Inflation is truly worrying and inflationary pressures are likely to continue on account of volatile global prices for a range of commodities such as crude oil, wheat and coal,��� he said. There are also inflationary expectations from higher crude oil prices, which has been hovering over the $100 per barrel mark since January 2008, as the effect of rising crude oil prices has not been passed on completely.
Inflation based on WPI accelerated from 3.11% for the week ended November 3, 2007, the lowest in 2007-08, to a three-year high of 7.41% for the week ended March 29, 2008, despite higher base effect. Rising prices of cement and steel are part of the reason for this. This is the sixth week in a row that inflation has stayed above the RBI���s comfort level of 5%.
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For the week ended April 7, 2007, the WPI stood at 211.5. For three weeks after that, it hovered around the same level till the middle of June 2007, except on May 5, when it went up.A matter of additional concern is the fact that bad weather, may set back estimates of the Rabi, or the winter crop, particularly of wheat. Also, nearly six lakh tonnes of mustard seed is expected to have been damaged by frost. Experts feel if the government misses its procurement target this time the situation would become unmanageable.
���Unlike the previous financial year, this time inflation is mostly supply-side driven. Almost all countries are finding it hard to meet the food demand of their citizens. Not only the domestic produce is insufficient to meet the food demand but hardening of prices in the global market due to scarcity of essential commodities and speculative trading have also made imports an expensive preposition,��� Dr Sen said.
Although the government is working on a war footing, using every tool that it can command to contain inflation, the impact of the measures depends a lot on global factors, he added. Besides most of the measures are of short-term nature and won���t have long-lasting impact. He said there was a need for another green revolution. Government should start concentrating on long-term supply measures such as better irrigation, facilitate availability of institutional credit and better seeds and technology to farmers, and augment fertilizer production in order to achieve self-sufficiency in food, he said.
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