For a government that has been expending considerable capital in political risk and perception management over the last few months, the stubbornly-high price trends have created additional worry lines.
Wholesale price index (WPI)-based inflation has galloped to a record high of 15.9 percent in May. This is not a one-off statistical occurrence. The WPI, which is a kind of the Indian version of a producers’ price index, has remained in double-digits since April 2021.
The average WPI-inflation in India has been 13.3 percent over the last 14 months, showing the stickiness, and implying that the current phase of price rise may not be a seasonal phenomenon.
Food items appear to be a particular cause for concern. Sample this. During April 2021 to March 2022, the wholesale prices of manufactured food products have gone up by 14.35 percent on an average. This would, other things remaining the same, mean that the cost of producing such goods, which also includes processed foods from biscuits and breads to pastas and many juices, have gone up sharply.
The case with cooking oil, the primary ingredient without which most Indian staple curries can’t be rustled up, is even worse. Wholesale prices of vegetables and animal oils and fats have risen by an eye-popping 48.23 percent in the last financial year.
Raw and unprocessed vegetables have become troublingly costlier. Wholesale vegetable prices have gone up 18.54 percent in May, and 39.24 percent so far this financial year, compared to (-)8.11 percent last year.
These details point towards a peculiar flux. Vegetable prices were relatively cheaper last year, but processed or manufactured food had seen a sharp spike. Ideally, the pattern should have been similar — manufactured food prices should have remained subdued if vegetable prices have remained cool. The high manufactured food prices could be partly explained by costlier fruits that saw wholesale prices rise by 20.70 percent, but still does not account for the nearly 50 percent rise in wholesale manufactured food prices.
There is another unexplained factor. If wholesale prices have remained so high, why aren’t these showing up in retail prices too? The details of this could be hiding in multiple layers.
WPI-based inflation, by definition, is what producers charge retailers. In many ways, the WPI represents farm gate and factory gate prices, upon which retailers add their margins, transport, and other costs, and applicable taxes that add up to the retail price label.
Rise in retail prices have lagged wholesale prices mainly because of two reasons. One, retailers may have squeezed a bit of their margins fearing not to chase away customers. Two, there may be a sleight of weight that could have come into play. In other words, processed and manufactured foods may have seen their weight fall but sold at the same price. So, a customer may be getting 465 grams of tea, for instance, at the price that previously fetched them 500 grams. These may have been necessarily disclosed in the packaging.
There is another question: Why were factory processed edible oil prices so high last year compared to this year (48.23 percent in April 2021-March 2022 compared to 13.19 percent in April-May this year)?
The clue to that could be in COVID-19 waves. Factories had remained broadly shut for about five months last year, hammered first by the devastating Delta wave of COVID-19 during April-June, and then again laid low in January-February by the Omicron wave.
Edible oil products are among the fastest moving in the fast-moving-consumer-goods (FMCG) basket given its necessity in daily food making compared to, say, biscuits or noodles. The relative high demand and the COVID-19-induced disruptions in production may explain high manufactured food wholesale prices last year.
In the final analysis, a lot will depend on fresh arrival of supplies of seasonal vegetables and the summer-sown kharif crop. All eyes are on the monsoon rains and when they start lashing north-west India, the country’s grain bowl. Plentiful rains will help tame the price monster. The opposite, however, can queer the pitch further. Scanty rains, besides keeping food prices high, can adversely affect demand for a host of manufactured products in rural areas, from cars to houses.