Poll results highlight inflation as big worry

NEW DELHI: Inflation is a much bigger worry than expected. As the results of the recent state elections are analyzed, it is evident that the pain of spiralling prices is a dominant theme in most households. While the government has identified taming inflation as a priority, experts say the task has to be handled on a “war-footing” to protect households reeling under the impact of the sustained price pressures.

Food inflation has emerged as a major policy challenge. While there have been bold statements on tackling the problem, often the approach has been kneejerk. Consider this: Between 2000 and 2007, the average rate of food inflation was less than 4% but during 2008-2013, it has remained above 10%.

“It has to be tackled on a war footing,” said Ashok Gulati, chairman of the Commission for Agriculture Costs and Prices (CACP). An average household spends about 50% on food, while some data suggests that the poor shell out about 60% and therefore any sharp increase in prices plays havoc with household budgets. Finance minister P Chidambaram had himself said that “there is no tax worse than inflation” and yet, the Centre is now trying to pass the burden of taming prices to the states.

While price pressures have remained stubborn, any temporary easing has been applauded by policymakers, forecasting that the pressures may be nearing an end. The Centre acknowledges the problem but there is now a tendency to blame the states for sticky prices. Sharp seasonal variations in vegetable prices grab the headlines but experts say the overall food inflation problem is much more entrenched and urgent reforms are required to overcome challenge.

RBI has consistently flagged the serious risk posed by price pressures and has called for government efforts to restore supplies and get its fiscal house in order. Experts say the problem has to be tackled jointly with a focus to increase supplies, smash the ring of middlemen in the chain and take urgent measures to reform the Agriculture Produce Marketing Committee (APMC) Act. For nearly 10 years, there has been tardy progress on this vital issue. They say that fruits and vegetables should be delisted from APMC, which will shut out middlemen and help ease prices.

Latest inflation data based on the wholesale price index showed that food inflation shot up to 18.2% year-on-year in October. The main drivers were prices of eggs, meat, fish, fruits, vegetables and rice.

According to a study undertaken by ratings agency Crisil, overall food inflation has averaged 13.3% during April-October and inflation of rice, eggs, meat, fish, fruits and vegetables is at 15.1%. With a weight of 79% in primary food, they have contributed 84% to food inflation in the fiscal so far, it said.