Inflation to soften further; steps on supply-side needed

Fall in global commodity and non-food manufacturing sector prices come to help

The government today exuded confidence that wholesale price index (WPI)-based inflation would ease to 6.2-6.6 per cent in March, primarily owing to the fall in global commodity prices, as well as the decline in prices in the non-food manufacturing sector.

In January, WPI-based inflation eased to a three-year low of 6.62 per cent, against 7.23 per cent in the corresponding month last year. At 10.79 per cent, the consumer price index (CPI)-based inflation, however, continued to be high; in the year-ago period, it was 7.65 per cent.

The Economic Survey 2012-13 said economists felt for policy matters, CPI-based inflation should be considered, as it had a greater impact on the common man.

The Survey added, "Food inflation has been particularly elevated over this period, contributing to an average of a third of total inflation." Food inflation, based on WPI, stood at 9.05 per cent in the quarter ended December. In the same period, CPI-based food inflation was 12.1 per cent.

 

"The persistently elevated prices of animal products (eggs, meat and fish), the rise in the prices of cereals and vegetables, along with the increase in international prices of fertilisers (non-urea) and administered prices of diesel, have contributed to inflation in differing degrees over time," the Survey said.

On the reasons behind the persisting high inflation, the Survey said, "In Q2 of 2012-13 (quarter ended September), 19 commodity groups, with 28.68 per cent weight in the WPI, contributed 64.38 per cent to total inflation." These commodity groups include diesel and food items such as cereals, oil seeds and vegetables.

On ways to control the rise in prices, the Survey said, "Apart from monetary policy attempting to control demand, supply-side responses will be necessary to bring down inflation in a sustained way. Ongoing policy initiatives need to be pursued." In the long run, measures to increase supply were the only road to non-inflationary growth, it added.