Comment

If the trends in headline inflation numbers are disconcerting, the retail price movements in rural India are positively alarming.

In December, the consumer index for agricultural labourers rose by 17.21% on a year-on-year basis while the similar index for rural labourers was up by 16.99%. In contrast, the inflation rate based on the widely followed wholesale price index was much lower at 7.31%.

Thus, at the level where it matters most, price fever is raging more fiercely than is conceded by the government and the Reserve Bank of India.

As the fiscal year opened, the inflation rate for both farm and rural labour stood at 9.09%; except for a negligible pause during August 2009, the prices in rural India have been spiralling upwards, zooming to 15.65% in November for the benchmark indices for the rural population.

In December, there was a further jump, with the inflation rate soaring to a decade-high of 17.21% for agricultural workers and to a 11-year peak of 16.99% for rural workforce.

On a month-on-month basis, the December index for agricultural labour rose by 1.13% and that for rural labour by 0.94%. Over the March 2009 level, the consumer price index for agricultural workers has hardened by 16.20% and the one for rural labour by 15.73%.

On the face of it, there seems to be a disconnect between the inflation rates worked out from the wholesale index and the two retail price index numbers for the rural population and the divergence is indeed considerable - 7.31% as against 16.99% (rural labourers) for December 2009 and 4.78% as against 15.65% in November.

This is basically owing to the fact that, in the weighting diagram for the wholesale price index and the consumer price index, food items have a relatively small share in the former - 25.43% - and a big share in the latter two indices, 69.15% in the index for agricultural labour and 66.77% for rural labour.

Because of this, the overall inflation rate tends to be understated in the WPI and influenced heavily in the two indices that represent rural India.

But, if the food price inflation within the WPI is considered, a considerable degree of correspondence with the retail price inflation is discernible.

Thus, on a point-to-point basis, food articles group in the wholesale index has become dearer by 19.17% during December 2009 and food products by 26.40%. This broadly explains the general inflation rate of 17% recorded for this month by the two rural price index numbers.

In fact, the higher food inflation rate for food items in the WPI for December may well presage an aggravation of the price fever at the retail level in the months ahead.