Inflation dips, but prices of essentials shoot up

Sugar And Rice Cost Up To 10% More In Two Months

MARIAMMA Alexander, a homemaker, has seriously begun to doubt what she reads in the morning papers. Inflation, she is told, is down to a seven-year low of 2.4%. But when she drops by at the neighbourhood greengrocer or makes a trip to the nearest mall, she isn't amused by what she sees.
    Wheat, rice, milk, vegetables and pulses — all the items she tosses into her cart without so much as a second thought — sport bigger price tags each time she goes shopping. "Inflation is coming down only according to the papers. When you go to buy groceries, prices of almost everything have gone up."
    Inflation peaked last August at 12.5%, before easing to 2.4% at present. This can be seen in the attached table for price indices. While the index for all commodities has gone down compared with last year, that for food articles, pulses and cereals is still higher than the last year. This is because the prices of commodities like sugar and rice have risen between 8% and 10% in the past two months, according to the Mumbai Grain, Rice & Oil Seeds Merchants Association secretary Nilesh Veera.
    "Prices are constantly fluctuating. Once they go up nobody will reduce them easily," she says. Ms Alexander has her list ready to drive the point home: The price of premium variety wheat has gone up to Rs 33 per kg from Rs 27 in the past two months. Parimal rice has gone up to Rs 32 per kg from Rs 30 two months ago. Prices of wheat bread and tea have also risen in the past three to four months.
    The reason for the disconnect between inflation numbers and prices at the retail level could have to do with a complex interplay of factors, ranging from the method of calculation to the number of intermediaries in the supply chain, or even political intervention in terms of maintaining minimum support prices.
    Inflation numbers are compiled by the ministry of commerce and industry after taking into consideration the prices of over 200 items every week, ranging from foodgrains to fuel, and indexing it to the base price of 1993-94. The weekly inflation numbers that are released, are a year-on-year comparison.
    Unlike other countries, the most commonly used measure of inflation in India is based on wholesale prices rather than consumer prices. The wholesale price index or WPI, a constituent of inflation, reflects prices at the wholesale end, whereas the consumer price index (CPI) reflects retail prices. Primary food articles constitute 22% of the WPI while it constitutes more than 50% for CPI. So, CPI led inflation for industrial workers is 10.45%
for the month of January 2009 as compared to 9.70% in December 2008.
    V Shanmugam, chief economist of Multi Commodity Exchange, points out that the disconnect between inflation numbers and ground reality is mainly due to inefficiencies in the supply chain. "There are too many intermediaries in operation. Also, the government is not incentivising supply chain efficiencies."
Prices of pulses, on their part, have remained high as the cost of imports have gone up due to a relatively weaker Indian currency. SP Goenka, secretary, Pulses Importers Association, said private importers are registering losses while state-owned companies are selling only to large traders, who in turn, are passing on the higher prices to consumers.
Lower production of sugar has led to higher prices, and the high minimum support price for rice has resulted in a 10% increase in prices. In the current slowdown, it is not just the consumer who feels the pinch. Retailers, too, are offering attractive deals, often at the cost of their margins.
R Ramasubramanian Nadar, director of Mumbai-based single store format retailer AP Mani & Sons, points out that FMCG manufacturers themselves offer good discounts on procurement, but nearly 50% of the added discounts come from the retailers' profit margins. "Most grocers enjoy an average margin of about 10% and in times like these, we have to dip into our profit margins and play the volume game." However, consumers feel the offers are just to clear inventories and pep up sales. "Many a time, the offers are attractive but the quality may not be guaranteed or the freebies may not serve your purpose," says Ms Alexander.
(With inputs by Pallavi Mulay)
nidhi.sharma1@timesgroup.com