Editorial: Inflation then, inflation now

CHENNAI: Inflation data released by the Ministry of Statistics and Programme Implementation (MoSPI) in the past week reflect the difficulties already being felt by the common man but also contain worrisome pointers to the months ahead. Wholesale price inflation for September has shot up to 11.39% from 9.92% recorded in August, the highest level since the switch to a new series with 2022-23 as the base year. Retail inflation has reached a 23-month high of 5.54%, sharply up from the August level.

Of the two indices, the one more directly relevant to the common man is retail inflation. The most worrisome concern in the latest data relates to food inflation, which has shot up to 7.74% from 5.97% in August, confirming nationwide reports of sharp spikes in the prices of several staples. Rural India is having the worst of it, with household food inflation there skyrocketing to 8.06%.

Prices of onions, a storied vegetable that is said to decide the fate of governments, are up 100% at several places, due to a fall in production in Maharashtra. Rice is 8-12% costlier year-on-year in anticipation of a fall in output due to the deficit monsoon. Sugar prices were running 22-28% higher than last year even before the start of the festival season.

Wheat has been relatively more stable due to the ample buffer stocks maintained by government agencies. As for non-food expenditure, which the Consumer Price Index (CPI) also monitors, transportation inflation is up to 5.01% while restaurant and personal care inflation are high at 9.36% and 13.75%, respectively.

These are merely the first impacts of the two main shocks troubling India - the more than 40% hike in oil prices due to the war in West Asia and the driest monsoon this century. With the war showing no signs of ending and prospects for the rabi (winter) crop being even worse than for the kharif crop, inflation is expected to increase further in the months ahead.

The CPI data, in fact, masks some of the impact of these shocks because the government intervenes to absorb some of it. The Wholesale Price Index (WPI), being a more immediate measure of the costs incurred by producers to manufacture goods, serves as a leading pointer to where retail inflation is headed. From MoSPI’s wholesale inflation data, the 360-degree impact of these two shocks is evident. Fuel and power inflation has shot up to 25.85% (22.93% in August) because petroleum and natural gas prices are up 57.32% year on year.

Manufacturing inflation, too, is at a high (9.76%), driven by sharply higher prices of base metals and chemicals. Food inflation at the wholesale level (8.66%) is higher than retail inflation (7.74%), reflecting government intervention and delayed impact. As wholesale inflation is accelerating faster than consumer inflation, it implies that the impacts will reach the common man in a month or two, when the higher costs of materials are passed on to the consumer and when the government can no longer absorb the impact.

To the common man, this scenario is reminiscent of what it was like 13 years ago: then too, inflation raged in the double digits, and the government was distracted by political crises. It was policy paralysis then. The difference, of course, is that the voters had a say then.