To Hover Around 7% As Wholesale Price Index In 2008 Is Ruling Higher Than In 2007
New Delhi: Even if the government is able to contain the prices of commodities at the present level, the inflation will continue to hover around 7% level in the next couple of months. This is because government’s success to contain the price rise during April-June last year. The wholesale price index (WPI) of all commodities remained in the range of 211.5 and 211.9 between April 7 and June 16. It touched 212.5 in the week ended June 2, 2007.
The index represents average price of all commodities including food products like rice, wheat, vegetables, metals and other manufactured items. If the index remains at the same level during a period, average price of all commodities does not change.
At the same time, inflation is a measure of percentage increase in the index during last one year. In the last three months between January 5 and April 5, WPI went up sharply by 9 points from 217.6 to 226.6. During the same period last year, the index had gone up by only 2.9 points from 208.7 to 211.5. Due to this sharp WPI increase in 2008, the inflation jumped from 4.26% during the week ended January 5 to 7.14% in the week ended April 5.
Now from here, even if government’s efforts check the price rise and WPI stays at 226.6, the inflation will remain around 7% as in April-June last year the index was around 212. Having said so, prices of individual commodities can fall. As the rabi harvest season has started, the prices of wheat, rice, pulses and edible oils are likely to go down.
In 2007, prices of wheat in wholesale market fell 2.7% during April-May. However, the marginal fall during harvest season could be because of a 6.5% fall in wheat prices between January and March. However, this year, WPI went up marginally during this period. Therefore, a good harvest could lead to substantial fall in the prices in the next couple of months.
But as wheat has only 1.38% weightage in WPI, the impact on all commodities would be a limited one. Government’s decision to sell edible oil at subsidized rate will also contribute to price control. As prices remained under control in case of most of the commodities last year, the percentage rise in prices will remain at the current level of around 5.5%.
In 2007, the prices of food articles in the international market were at a lower level, which kept inflation under control. But, in 2008, global prices are ruling much higher than prices in the domestic market. Therefore, it will be tough for the government to bring down prices from the current level in the short to medium term.
In certain metals like steel, domestic prices are lower than global prices. Therefore, it will be difficult for government to lower the prices from the current level unless the global prices fall. As global prices are unlikely to fall, economists feel even best efforts of government would only hold the price line. So, a substantial fall in inflation in is unlikely.