Prices of essential commodities set a new record; WPI at all time high

More bad news for the government.

According to the latest wholesale price index (WPI), prices of essential commodities in India are at a historic high, higher than they were even during the worst price rise phase at the beginning of this year and 2010 (see chart 1 below).

While prices had hit a record level of 197.6 in the first week of 2011, they were then brought under control after much outcry and demonstrations on the street.

The food minister Sharad Pawar even lost his job and a new Congressman KV Thomas was brought in.

An index of 100 means that prices have neither increased nor decreased since 2004-05 (the base year), while an index of 200 means that they have doubled in the last six years.

In other words, by early 2011, thanks to a run up in the prices of food items, essential commodity prices had doubled compared to where they were six years ago.

However, it was brought down to a low of around 187 by march (implying an increase of 87% over 2004-05 prices.)

This was done primarily by controlling the price of Onions, which went from around Rs 50 per kg to Rs 10 per kg in three months.

However, Fruit prices continued to high, at around 230 (2.3 times 2004-05 prices.)

The current bout of price rise, however, should be more worrying for the government, not just because it is a record primary article inflation level.

The current bout is ‘secular’ and not inspired by the increase in price of one or two commodities like onions (though onion prices too are increasing fast.)

For example, overall vegetable prices were around 150 mark (50% increase from 2004-05) in mid May. They have now come close to the 200 mark (see second chart.)

Fruit prices, which were at the 150 mark at the beginning of the year, shot up to around 240 by April. They were brought down to around 190 by end of June and kept there. However, according to the latest data, they too are now starting to move up and are at the 200 mark already.

The result is that wholesale inflation in primary items or essential commodities (food, energy, clothing etc.) is now at its highest level in many weeks. For the last week of July, the latest period for which data is available, it is at 12.22%.

In other words, unless your income (salary) is increasing at 12.2%, your net purchasing power is going down. During these times of economic uncertainty, many citizens are unlikely to get an assured income increase of 12% a year.