There has been no let-up in the rising trend of food prices. For the week that ended on November 28, the wholesale price index for food articles rose 19.05 per cent over the corresponding period last year. A week earlier, it was at 17.47 per cent. Indeed, arresting the price rise of essential commodities has been a challenge to the government for quite some time now. Some recent developments have aggravated the price situation. Over the last year, the rise in prices of food articles has been the highest in 11 years. These wholesale prices do not fully reflect the rise in prices at the retail level. Items of mass consumption such as potatoes, eggs, and dairy products have registered the highest increase. While the common man has been reeling under the impact of high food prices, the weekly WPI index did not quite gauge the severity of the burden. That was because food and other primary articles are assigned a relatively low weight of 22 per cent in the WPI index. As a result any rise in food prices got offset by the fall in the prices of manufactured goods, fuel, and power. Such a misleading picture has now been corrected: since mid-October, the government has started announcing the WPI inflation once a month; weekly announcements are confined to food and fuel inflation. The new system has not only infused a measure of transparency in the official economic data but it is also in line with what ordinary people experience every day. The WPI index for November shows inflation at 4.78 per cent on a year-on-year basis, the highest in 11 months.
The weekly inflation figures showing a sharp upward movement have naturally increased the concerns of the government, which has so far failed to articulate a coherent strategy to step up the supply of food articles and other essential items. Agricultural production is set to decline sharply in the third quarter of this year. The Kharif season has been affected badly by delayed monsoons, drought, and flooding in different parts of the country. The anticipated sharp decline in the production of major crops, coarse grains, pulses, and oil seeds is one of the principal factors fuelling inflationary expectations. Moreover, the shortfall is expected to be such that even a bumper wheat crop in the Rabi season is unlikely to make up for it. From a monetary perspective, sustained high prices of essential goods will harden inflationary expectations and also lead to a clamour for higher wages. Monetary intervention might then become necessary to counter the effects of supply side problems.