Food is eating your savings

Notwithstanding the global recession, the inflation falling to below 4% and the low prices of petrol and other commodities, there is no perceptible relief for the common man, insofar as prices of goods of daily need are concerned. Over the past three months, sugar prices have risen by 30%, tur dal is costlier by 25%, groundnut oil by 18%, mustard oil by 31% and the price of wheat is up 7%.

These price hikes have more than offset the savings accruing from the drop in prices of rice, potato, onion and sunflower oil. For non-vegetarians, mutton prices have remained stable but the price of chicken has shot up. Nowadays 1 kg of chicken costs 33% more than what it cost three months back.

The wholesale price index (WPI) has drastically fallen in the last four months but food items have become dearer. The inflation rate, too, has come down from 8.98% in November 2008 to 3.92% in February 2009. Yet, food prices are not expected to come down in the near future because supply is unable to keep pace with the rising demand in the country.

“The rate at which food prices are rising is in double digits at 10.4%. We need to worry about its impact on the middle and lower income groups whose consumption is dependent on the availability of money,” said Mridul Saggar, chief economist of Kotak Securities Ltd. “This can affect nutrition levels in a large segment of the population. I do not see food prices coming down substantially in the near future.” Saggar added that, globally, the amount of food available for export with food surplus countries had come down, though the situation has been improving over the last one year.

If one were to consider food inflation as reflected in the food index in the wholesale price index (WPI), the fact is that it has remained in the range of 10.5% to 11.25%. However, when compared with January 2009, the index has risen from 9.5% to 10.4% as of February 7, 2009, after touching a high of 11.64%.

Sudarshan Iyenger, economist and vice-chancellor of Gujarat
Vidyapith, said the impact of the global slowdown was now being felt in India, too. “The government is worried that the situation might get worst, which is why it has started beefing up agri-products stocks,” Iyenger said. “This is why, in spite of higher production, demand continues to exceed supply. The government will continue to hold on to its stocks and will release supplies only if a crisis situation emerges.”

When the rate of inflation is positive, it means the prices of commodities are rising. “Earlier, because of the drastic rise in prices, commodities on the WPI were becoming dearer. Today, the growth rate has come down but the commodity prices are still the same or are going up,” said Ravindra Dholakia, an IIM professor.