VIII. Price Movements

Transcription

1 VIII Price Movements An Overview Annual inflation rate as measured through wholesale price index (WPI) has been lower at 2.97 per cent for the week ending October 26, 2007, based on a point-to-point basis as against 5.35 per cent in the corresponding week of the previous year (Table 8.1). The easing of inflationary pressure in the economy, which began from April 2007, has continued over the months and the inflation rate has reached a comfortable level of 2.97 per cent by end-october This respite in the inflation rate is brought about by the combined effect of measures like monetary tightening and also by absorbing the increase in the international oil prices by the authorities at the fiscal cost. In addition, the recent price behaviour is also influenced by the behaviour of some sectoral price trends, viz., prices of pulses, fruits and vegetables, non-ferrous metals and sugar group especially the behaviour of sugar prices. Still, the price behaviour of some essential consumer commodities, like Jowar, Ragi, Tur, Masur and some vegetables especially increase in prices of onions; all of them recorded more than double digit annual rise are cause for concern. Hence, the inflation situation is not as benign as the current numbers indicate and the pressure on inflation could build up because of food products and global foodgrains and edible oil prices. Moreover, the unabated increase in international crude prices whose effect is still not felt in the internal oil prices because of heavy appreciation of rupee visà-vis US $ and also governmental measures of not passing on the increase to final consumers by making oil companies to absorb the increase as well as keeping a rein on the oil prices by issuing oil bonds, etc., kept the rise in the general price sober during the year. Moreover, high base also had an important role in keeping the general price increase at a moderate to low level. The inflation rate measured through different consumer price indices (CPIs) for September 2007 have ranged between 5.7 per cent (in CPI- UNME) and 7.9 per cent (in CPI-AL) compared with a range of 6.6 per cent to 7.9 per cent in the previous year. Though there is some discernable respite, especially in food prices which can be witnessed in the movements of consumer price indices in consonance with the fall in the wholesale prices of many food articles, 51

2 the basic up-trend in consumer prices was persisting and could rear its head in the coming months (Table 8.3). Monthly Behaviour Non-Food Articles led downswing in prices During the month of October (ending October 26, 2007), the WPI remained around at (Table 8.2).While the prices of twenty-two essential commodities with weight around 11 per cent moved up, twenty-two commodities recorded a decline in their prices during the month, October 2007.Thus the prices of food articles recorded decline during the month by 0.6 per cent in contrast to an equal rise of 0.6 per cent in October 2006, mainly because of fall in prices of jowar (-0.7 per cent), bajra (-1.9 per cent), moong (-3.5 per cent) and urad (-2.8 per cent). But what is cause for concern is the up trend in prices witnessed in all other commodities. The prices of vegetables as per the official index recorded substantial fall of 11.4 per cent as on October 26, 2007 as against a marginal increase of 1.1 per cent last year mainly because of decline in the prices of tapioca (-3.4 per cent), tomatoes (-26.8 per cent) and okra (-0.9 per cent). But prices of potatoes, onions, okra and cabbage recorded increases during the month. Prices of all fruits except sapota, which rose by 24.1 per cent during the month, recorded decline in the prices, and as a result, price index of fruits as a group slipped during the month under review. Marginal increase in the prices of milk, eggs, fish and meat, condiments and spices group has been were witnessed during the month. Prices of tea and coffee were stable during the month under review. Fall in the prices of raw cotton, groundnut, copra, gingelly seed and soybean pushed down the prices of non-food articles group by 1.4 per cent as against a marginal fall of 0.2 per cent last year. The price index of third group minerals also declined during October Annual Variations in Wholesale Price Index Annual inflation rate as measured by WPI on a point-to-point basis recorded an increase of 3.0 per cent for the week ending October 26, 2007 as against a rise of 5.4 per cent in the 52

3 corresponding period of last year (Table 8.2). However, prices of primary articles have registered an increase of 5.1 per cent and contributed about 39 per cent to overall price rise for the same period as compared to an increase of 6.8 per cent and a 28 per cent contribution during the comparable period of last year. The prices of manufactured products have risen by 3.9 per cent between October 27, 2006 and October 26, 2007 as against a rise of 4.8 per cent during the comparable period of last year. The group s contribution has been worked out to 72 per cent as against 50 per cent last year. The third major group fuel, power, light and lubricants, however, has recorded a decline in prices by 1.5 per cent and negatively contributed by 11 per cent as against substantial increase of 5.2 per cent and contribution of 22 per cent last year mainly due to absorption of the increase in international oil prices which at present is hovering around US $ 85 per barrel. Among primary articles, while food articles (5.1 per cent) recorded comparatively lower growth in their prices; prices of minerals slipped by 1.4 per cent; non-food articles (11.3 per cent) group recorded high inflation rates than those in the corresponding period of previous year. Among food articles, while prices of pulses as a whole recorded a fall mainly due to substantial decline in the prices of gram, urad and moong; there is double digit rise in the prices of masur and arhar. Prices of all cereals witnessed an increase in varying degrees. Prices of vegetables like onions (108.8 per cent), Tapioca (18.1 per cent) and Ginger (74.0 per cent) rose substantially during the year ending October 26, Low production in key producing areas pushed up onion prices (Table 8.2). The non-food Articles group which mainly consists of commodities used as raw materials, recorded double digit inflation of 11.3 per cent during the year ending October 2007 as compared to 3.5 per cent last year. Substantial increases in prices of oilseeds (23.4 per cent) and fibres (11.2 per cent) have pushed up the prices of non-food articles group. Among manufactured products, all the constituent groups have recorded y-o-y increases during the year ending October 26, 2007 except prices of textiles (Table 8.2). The marginal decline in the prices of textile (-1.6 per cent) was mainly due to substantial decline in the prices of jute textiles, man-made textiles and tyre code fabric. Substantial increase of 11.7 per cent as against a rise of 5.7 per cent in the prices of edible oil is mainly due to the increase in prices of 53

4 oilseeds whose production witnessed a decline last year and also to some extent due to the firming up of international edible oil prices which increased up by 12.5 per cent during the year in Indian Market. Per capita consumption of edible oil is around 11 kg per year, considerable lower than that in most developed countries, leading to India s total consumption to around million tonnes of various edible oils as against the domestic production of only 7-8 million tonnes. Hence there is demand and supply mismatch, which is to be taken care by import. International edible oil prices are also high especially palm oil prices in Malaysia, which pushed up the prices of imported edible oils. Financial Year Variations During the first thirty weeks of the fiscal year , the wholesale prices index for all commodities had recorded comparatively lower rise of 2.2 per cent as against a rise of 5.2 per cent during the comparable period of last year (Table 8.2). During the current fiscal so far, though prices of all the three major groups have increased, they are much below the increases witnessed during the comparable period of last year. Prices of the major group primary articles rose by 4.0 per cent during the review period as against the large increase of 9.5 per cent witnessed during the corresponding period of last year. The rate of growth in the prices of food grains has decelerated during the first thirty weeks of current fiscal and the index rose only by 2.7 per cent during the review period as against a rise of 8.0 per cent last year. Though, the prices of bajara and maize have declined, all other 5 cereals viz., rice, wheat, jowar, barley, and ragi, recorded price increases with prices of jowar registering a double digit inflation. Substantial fall in prices of moong and urad brought down the prices of pulses by 4.1 per cent during the fiscal ending October 26, 2007 as against a substantial rise of 24.0 per cent last year, in-spite of a rise in the prices of other pulses like arhar (9.7 per cent) and masur (19.3 per cent). Vegetable prices have recorded a whopping rise of 30.8 per cent during the current fiscal year so far as against a rise of 26.1 per cent last year, due to massive increases in the prices of 54

5 potatoes, onions, fresh ginger, peas, tomatoes, cauliflower and cabbage. Prices of brinjal and okra slipped during the period. However, prices of fruits have witnessed a decline with prices of apples, oranges, cashew nuts, fresh coconut, pineapple and guava on a downward trend. But prices of bananas spiralled up by 13.1 per cent during the review period. During the current fiscal ending October 26, 2007, the prices of eggs, Fish inland, meat, pork and poultry chicken have declined. The prices of eggs registered a double-digit fall during the current fiscal so far. Fish marine however registered a double-digit inflation. Decline in the prices of sub-group other non-food articles and a softening in the prices of fibres and oil seeds have put a reign in the upward movement in the prices of non-food articles. The price index of mineral group rose by 1.0 per cent during the review period mainly because of an increase in the prices of iron ore by 4.0 per cent during the current fiscal so far though the increase was much smaller than that recorded in the comparable period of A 1.9 per cent rise in the prices of mineral oils pushed up the prices of the major group fuel, light and lubricants by 1.1 per cent during the year as compared to 3.8 per cent last year. Increase in the prices of aviation fuel (15.3 per cent), naptha (8.6 per cent) and furnace oil (11.6 per cent) pushed up the price index of mineral oils during the period under review. Price index of coal mining and electricity remained stable during the current fiscal year so far. An increase of 2.0 per cent has been registered in the price movement of the major group manufactured products as against a rise of 4.2 per cent during the comparable period of last year. Under this major group, the prices of wood and wood products remained stationary. Prices of textiles declined by 1.0 per cent with prices of cotton textiles declining by 1.1 per cent. Prices of group rubber and plastic products rose by 3.4 per cent during the current fiscal so far as against a rise of 8.9 per cent during the corresponding period last year. Prices of nonferrous metals witnessed a decline in their prices by 5.3 per cent during the current fiscal so far mainly due to decline in the prices of aluminium (-10.4 per cent as against 13.5 per cent last year) as against a steep rise of 24.5 per cent last year. 55

6 The group index of food products rose by 1.9 per cent during the current fiscal so far as against a larger growth of 5.2 per cent last year. In this group, except the prices of sugar, salt and coconut oil, all other major commodities registered increases during the fiscal so far. All other groups, under the major group manufactured products, have recorded increases ranging between 1.2 per cent in case of paper and paper products and 3.4 per cent in the case of beverages, tobacco and tobacco products. Consumer Price Indices Table 8.3: All-India Consumer Price Indices CPI-IW CPI-AL CPI-RL CPI-UNME (Base: 2001=100) (Base: =100) (Base: =100) (Base: =100) April May June July Aug Sep Oct Nov Dec Jan Feb Mar Food Index April May June July Aug Sep Oct Nov Dec Jan Feb Mar Source: Labour Bureau 56

7 Annual inflation measured through consumer price index for industrial workers, after reaching 7.6 per cent in February 2007, depicted a sobering effect in the next seven months in consonance with the ease in the prices of a large number of essential food items witnessed in WPI, reached 5.7 per cent in June It although, started its upward movements from July 2007 and has reached 7.3 per cent by August, once again declined to 6.4 per cent in September 2007 as against 6.8 per cent in September 2006 following the trends in food index. CPI-AL and CPI-RL have also showed similar trend as of CPI-IW but at a faster rate. CPI-AL and CPI-RL rose by 7.9 per cent and 7.6 per cent on a y-o-y basis in September 2007, respectively, as compared to 7.3 per cent and 7.0 per cent last year (Table 8.3). The food index of CPI-AL and CPI-RL recorded double-digit inflation during the period. The movement in CPI-UNME, on the other hand, is relatively slow during the period. Global Inflation The two problems that are facing the global economic scene are the depreciation of the US dollar and the increasing global oil prices. However, as far as India is concerned whose currency with respect to dollar is on the upswing, the increasing oil prices are not much concern now as they can import oil at a lower rupee cost. Moreover, the government also taking appropriate measure to keep the impact of global oil price rise in India to a minimum by not passing on the rise to consumers by floating oil bonds, etc. While studying a comparative picture of countries in the global inflation scene, a worrisome aspect seen is that India is experiencing a high inflation rate of 6.4 per cent measured through CPI-IW, during the current year so far among the comparable groups of countries like China (6.2 per cent), South Korea (3.0 per cent), Thailand (2.5 per cent), Hong Kong (1.6 per cent), and Malaysia (1.8 per cent). However, inflation rate in Pakistan (8.4 per cent) and Indonesia (6.9 per cent) were higher than that in India (Table 8.4). Inflation remained stable in the advanced countries. In the euro area, inflation rose by 2.6 per cent in the year to October sharply faster than the 1.6 per cent in last year slightly above the European Central Banks 2 per cent ceiling (Table 8.4). China s inflation rate; after reaching a 10-year high of 6.5 per cent in August 2007 mainly due to increase in food prices, dropped marginally to 6.2 per cent in 57

8 September In UK, inflation reached the lowest at 1.8 per cent since March 2006 as cost of energy, tobacco and food declined, which is below the central bank s ceiling of 2.0 per cent. Table 8.4: Global Inflation Scenario during October 2007 as per Consumer Prices (Year-on-year in per cent) Country Inflation Rate Latest Year Ago Asian Countries China Hong Kong India Indonesia* Malaysia Pakistan Singapore South Korea* Taiwan Thailand* Japan European Countries Britain France Germany* Italy* Spain Euro Area * United States Russia South Africa Notes: #: for industrial workers, * data for October Source: The Economist,