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Anil Sasi
Harish Damodaran

New Delhi, Sept. 21

For the fourth successive week, the annual wholesale price index (WPI)-based inflation rate has fallen to touch a 107-week low of 3.32 per cent.

The 3.32 per cent year-on-year rate for the latest recorded week ended September 8 is the lowest since the 3.22 per cent level of August 20, 2005. But hold on — the weeks ahead could see a further dip in the figure.

The reason for this is simple. The annual inflation rate during the current fiscal has dropped from an average 6.28 per cent in April to 3.95 per cent for August. However, the same period of 2006-07 saw the inflation figure climb from 3.86 per cent to 5.12 per cent. What this suggests is that the falling inflation of this fiscal has come on the back of the rising inflation of the previous fiscal.

The accompanying table points to the likelihood of the ‘base effect’ coming to play in a more pronounced fashion in the coming months at least till March — when the corresponding base inflation averaged over 6.6 per cent. So, don’t be surprised at official claims being made around that time on how sensible monetary and fiscal policies have finally delivered and reined in the inflationary monster.

But does this seemingly declining trend mean much for the consumer? Well, not really because the WPI is a hotchpotch, reflecting price movements of 435-odd items from cereals and vegetables to purified terephthalic acid and carding machines.

If one looks at the latest inflation rates even at wholesale level for some basic consumption items, the numbers are: 17.16 per cent for vegetables, 17.44 per cent for eggs, 10.16 per cent for edible oils, 8.03 per cent milk, 7.03 per cent for rice and 8.27 per cent for drugs and medicines.

Small wonder then, the official data on consumer price indices (CPI), as opposed to the WPI, tell a different tale. During August, the CPI for ‘agricultural labourers’ rose 8.8 per cent year-on-year, while the corresponding inflation in July for ‘urban non-manual employees’ was 6.86 per cent. A far cry, indeed, from 3.32!

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