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India released its official wholesale price index (WPI)-based inflation data for April 2013 today. According to the data, inflation stumbled to 4.89 per cent (lower than the market expectation), the first sub-five percent reading since November 2009.
While the lowering of headline does come as a relief to the market, a closer look at the data shows some worrying trend. For one, lower inflation is a mere base effect at play. From January 2010 till date, monthly y-o-y (year-on-year) inflation was as high as 8.62 per cent. Such a sustained level of elevated inflation is unprecedented.
Also, although the food inflation eased to 6.1 per cent in April, food grain inflation still remains high and, that too, in double digits. Given that the government is now looking at going the ordinance way to make the food security bill a reality (providing cheap food grains to 70 per cent of the population), one should brace for higher food grain prices as government starts to aggressively procure food grains by offering even higher minimum support price.
There is of course a small matter of diesel price not being raised in April (in view of the Karnataka elections). Now that the election is done and dusted, diesel prices have been raised by one rupee in May, which will offset the impact of a three-rupee deduction in petrol prices announced on April 30, again before the elections.
What is more important is that the fast pace of easing may actually be a mirage given that the final inflation number generally tends to be revised upward. There was a sharp upward revision (by 0.44 per cent) in the February inflation data (following a 0.69 per cent upward revision in January). In fact, during a period of 36 months, from January 2010 till February 2013 (the last available final data), inflation was revised downward a mere four times, remained the same only twice and was revised upward a whopping 32 times - with the average upward revision being as much as 0.51 per cent.
Equally worrying is the persistently high inflation at the retail level. After four continuous months of double digit inflation, CPI finally eased to 9.39 per cent in April. Yet, it is as much a 4.5 per cent higher than wholesale inflation. Even, the core (stripped off the volatile food and fuel component) CPI remained high at 8.13 per cent, while, core WPI inflation plummeted to 2.77 per cent. And, given that the CPI data is much more stable than WPI, time may not yet have come to rejoice taming of inflation.
The author is a New Delhi-based independent economist
