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Your daily meal to get costlier

The spike in prices in the last few months could get worse in months to come, and undo the economic recovery the country has been making, say leading economists, reports Rajesh Mahapatra. See graphics

delhi Updated: Nov 16, 2009 01:44 IST
Rajesh Mahapatra

The spike in prices in the last few months could get worse in months to come, and undo the economic recovery the country has been making, say leading economists.

Last Thursday the government reported a surprisingly strong 9.1 per cent growth in industrial output in September.

But some policymakers were looking at another set of data released the same day — the wholesale price numbers for October that showed a sharp 13.7 per cent increase in food prices from a year ago.

Inflation is back on the government’s list of worries.

“Inflation is reasonably high. We are concerned,” Finance Minister Pranab Mukherjee said earlier this month.

He described the growing divergence between wholesale prices and retail prices as “disturbing.” For instance, while wholesale prices of pulses increased about 21 per cent the past year, consumers are actually paying 50 per cent more.

Food prices have been firming up from the time a deficient monsoon dented crop prospects.

The Kharif crop, grown during the June-September period, is estimated to decline 18 per cent this year, according to the Agriculture Ministry.

“Given the shortfall in agricultural output, pressures on this (price) front are likely to remain till the winter harvest hits the market in January-February,” wrote Goldman Sachs economists Pranjul Bhandari and Tushar Poddar in an October research update.

While prices of pulses, vegetables and sugar led the price rise over the past year, cotton, soybeans, rice and oilseeds are expected dominate the trend in the coming months, said a research note from Barclays Capital.

Many blame the sharp rise in food prices on speculation and hoarding as well.

“It is not a case of real shortages but one of large scale hoarding. The farmers and consumers are exploited and only speculators are benefiting,” said Prakash Javadekar, BJP spokesman.

Although the monsoon was hugely deficient, a late revival of the rains left enough moisture in the fields for a good rabi crop, which is sown in winter months.

Even if food prices ease, others fear, the rising global commodity prices — especially oil — could keep up the pressure on overall inflation.

Several investment banks such as the Goldman Sachs expect interest rates to rise on the back of high inflation.

“We expect policy rates to be raised by 125 basis points (1.25 percentage points) during 2010,” the Citigroup said for India in its global economic outlook report released on Oct. 21.

If that happens, it would be a double whammy for millions of middle class Indians – battling a bloated kitchen budget and a rising EMI for loans.