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Inflation shifts gear from needs to aspirations

business Updated: Nov 22, 2010 21:56 IST

It is not your father's inflation.

Economists trying to ensure growth while keeping prices in check are worried that food prices are revealing a new pattern reflecting the challenges of a growing economy.

As hundreds of millions of people shift to higher standards of living, the focus is changing from basic needs of nutrition to such as rice and coarse grains to more aspirational products such as protein-rich eggs, meat and fish.

This is a sustaining demand in an economy in which supply shortage was the key driver of inflation in the past and telling on measurement indices. Experts call it "structural inflation."

"No amount of demand side management will help. Capacity expansion both in agriculture and manufacturing has not kept pace," said Rajiv Kumar, director-general at industry chamber FICCI.

Recent price data shows that prices of protein-rich food items such as pulses, milk, eggs and fish have risen faster that overall food prices.

In October milk inflation at 21.7% outpaced overall food inflation of 14.1%.

Prices of egg, meat and fish have risen by 33% over a year milk by 25.32 % and fruits 17.84%, while rice has risen by only 8.33% and vegetables 5.77%.

Economists say low-level incomes go with carbohydrate-rich diets based on cereals. That is changing. "Rise in income has increased the share of proteins in peoples' diet. Rising affluence has also led to an increase in demand for proteins and nutrition," said Reserve Bank of India deputy governor Subir Gokarn recently.

Gokarn has estimated that proteins gain importance after per-capita incomes cross Rs 580-690 per month in rural areas and Rs 1,100-1,380 in urban areas.

"Supply side needs to be addressed and this would not happen overnight, it would take some time," said D.K Joshi, chief economist at credit rating agency Crisil. He said rural demand had also risen on account of incomes generated by the National Rural Employment Guarantee scheme.