Inflation marks Assembly polls

Congress' defeat likely linked to high and unrelenting rate of price rise

India’s retail price inflation touched a record high of 11.24 per cent in November but it was already more than 11 per cent in September in Delhi — now thought to be an important reason for the rout of the Congress in the recent legislative assembly elections.

Consumer Price Index-based inflation rose to 11.21 per cent in October in Delhi and to 12 per cent in November. At the all-India level, inflation entered the double-digit zone in October, after a gap of six months, at 10.17 per cent from 9.84 per cent in September.

The Congress performed poorly in the recent Assembly elections in Delhi, Chhattisgarh, Rajasthan and Madhya Pradesh. It did retain power in Mizoram. An argument doing the rounds is that high inflation was one reason for the rout. The numbers seem to substantiate that argument, except in Rajasthan, where the Bharatiya Janata Party (BJP) wrested power from the Congress, despite the state inflation being lower than the national average. Rajasthan’s inflation inched up to 8.33 per cent in October from 8.32 per cent in September. It further rose to 9.67 per cent in November. This means the rate of price rise did not reach double digits in the state in these three months, unlike in other places. Experts said the retail price inflation, at 9.67 per cent, was certainly high, though less than the national average.

Chhattisgarh also saw inflation of more than 11 per cent in September and this was one of the few states where the Congress gave a tough fight to the ruling BJP. In fact, early trends showed the Congress and the BJP running neck and neck in the state.

Inflation touched as high as 13.12 per cent in October in the state and reached 14.07 per cent in November.

Madhya Pradesh, too, witnessed high inflation but it was less than the national average, at least in November. The rate of price rise increased to 10.67 per cent in November from 10.64 in October. This meant  inflation in October in the state was more than the national average. Also, inflation for September was a bit higher in Madhya Pradesh, at 9.88 per cent, vis-a-vis the all-India rate of price rise. Voters were concerned more about essential food items. Inflation in vegetables was as high as 61.60 per cent in November at the all-India level. It was 45.67 per cent in October and 34.93 per cent in September.

Food and beverage inflation rose from 11.44 per cent in September to 12.56 per cent in October and to 14.72 per cent at the national level. A break-up of these inflation numbers were not available for each state.

Mizoram’s overall retail price inflation was less than the national average in the three months under review, though high at 10.17 per cent in November. It was 8.70 per cent in October and 8.25 per cent in September. This was the only state where the Congress won in the recent elections, taking 27 of the 40 seats. The opposition MNF secured just four seats. Congress President Sonia Gandhi had blamed price rise, among other factors, for the debacle. Finance Minister P Chidambaram had said the state governments were at fault for not dealing with hoarding, which added to the inflationary pressure.

Marginal pick-up in core inflation

Wholesale Price Index (WPI)-based inflation rose to 7.5 per cent in November from seven per cent last month. The rise was led by high inflation in food and fuel items, mostly due to supply-side factors and continued price increases in administered fuels (diesel and LPG), respectively.

Manufacturing inflation rose marginally to 2.64 per cent in November from 2.5 per cent a month ago.

Domestic demand-side pressures on prices, particularly, reflected in non-food manufactured articles, remained weak. Non-food manufacturing inflation, the Reserve Bank of India (RBI)’s measure of core inflation, stood at 2.66 per cent in November, almost unchanged from 2.64 per cent last month.  

CRISIL’s Core Inflation Indicator (CCII), which includes manufactured food articles and excludes metals in measuring domestic demand-side pressure on prices, however, rose to 3.2 per cent in November from 3.1 per cent last month. Any increase in prices of processed food reflects a second-round impact of inflation in primary food articles and, therefore, captures domestic demand-side pressures in the economy. The rise in November’s CCII was driven by an increase in inflation of manufactured food articles to 2.5 per cent in November from 1.9 per cent in the previous month.

While input costs have risen across the board due to rising fuel prices and a weak rupee, pass-through of rising costs is most visible in processed food articles as demand for food tends to be relatively less price-elastic. Primary food inflation has been hovering around 19 per cent for the past four months. Therefore, firms have begun to pass-through rising input costs into prices of manufactured food articles. A pick-up in rural consumption due to higher farm incomes, following a normal monsoon, is likely to provide further impetus to the demand-side pressures in the economy.

CCII continued to remain above non-food manufacturing inflation, as it excludes metals prices, which have been falling on a year-on-year basis since April 2013. In November, ferrous and non-ferrous metal prices fell 0.9 per cent compared to a year ago. Given metal prices are largely influenced by changing global demand and volatility in the exchange rate, rather than domestic demand pressures alone, metals must be excluded while measuring core inflation, as is done in the case of CCII.