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Urban CPI Inflation Above 11% With Both RBI and Government Insensitive

2013 rings in with a Consumer Price inflation of 10.79% and urban inflation above 11%.

It’s really time to stem the rot. With the continuous retrograde focus on wholesale prices, which either don’t get updated on time or are simply not reflecting reality, the government and RBI (which recently cut rates) have lost the plot. The plot, really is about the fact that Indian consumers feel the pinch more with services, housing and food, the first two of which have ZERO weight in the Wholesale Price Index, and food is way underrepresented.

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This is the highest ever CPI inflation number recorded since the new index was created in 2011.

And the problem isn’t either rural or urban specifically – both indexes are way above comfort levels. Urban inflation has crossed 11%, the second highest number ever (only higher for a month in April 2012).

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Where are we hurting? The highest inflation is in Food, Clothing, Housing, Fuel and Household Items.

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The biggest culprit is food, which the RBI chooses to ignore because they believe they can’t control it. But that makes no sense in a country like India where food, for most of the population, is a significant expense. And please don’t argue that monetary policy does not play a role. If you keep increasing money supply – a terrible thing done in the 00s with no care for consequences – we will see it hit commodity prices.

The lack of proper roads, good storage facilities, a retrograde “food security policy” and things like the NREGA will keep food prices high. To reduce food prices you have to actually free agricultural land from the clutches of archaic rules set by backward thinking politicians. However, change won’t happen in a hurry. Apparently it will take prices to move to 25% inflation before someone decides to act. 

  • NJ says:

    and it will move 25% ..no doubt.
    We have had no raise in the south of india…and north indian weather conditions are bad for crops.
    Govt has sky high procurement prices from farmers which will ensure that the agri prices will keep going up thereby food.
    Education is becoming a head ache…and its often not measured well. if one goes down the city and surveys the school fees, the inflation there is around 50%.
    Jai Hind

  • Raag says:

    When rural folks are getting employment via NREGA, you pampered middle-class folks keeping talking about hyper-inflation. Middle-class folks are ungrateful people who berate Manmohan Singh for the inflation but don’t thank him enough for the great reforms he ushered in 1991. #AakarPatelLingo

  • Anon says:

    “To reduce food prices you have to actually free agricultural land”
    What’s the relation between these????

    • Simple – we have low productivity, one reason for which is fragmented land usage. To fix, you have to let people sell or consolidate. To do that you free agri land from ownership restrictions. Then the rest of the stuff will come together.

      • Rohan Choukkar says:

        Also, something needs to be done about the agri-commodity supply chains. The amount of food lost due to improper storage is simply embarassing – some figures say its as high as 50%

  • Inder says:

    Unless something totally radical happens on the supply side, inflation won’t come down.
    Let the rules be eased for Walmart and Co to setup Cold Storage facilities. Most of the food grains are getting wasted due to lack of storage options.

  • naraynan sethurao says:

    To increase supplyside agri-economy, Government should encourage Producers’ Co-Operatvies (Manufacturers’ of agri-products) to avoid dismantling existing small farmholders and bring in appropriate tech-driven agri-tools to improve efficiency and productivity and empowering them to get market price for their produce and sustain their livilihood. Going forward Wal-Mart and et al can step in to support these farmers directly buying from them.

  • Ramamurthy says:

    Way things are going inflation may not come down at all.
    1.Milk prices up(Karnataka)
    2.Impending increases in diesel prices.
    3.Power bill may go up by 100%
    4.Election obligations.More money with no productivity.
    5.Agricultural land being converted into concrete jungles.
    6.RBI,s efforts to control inflation getting no response resulting in negative growth.
    7. The list can go and on.

  • KS says:

    I think food prices are going up because it was artificially depressed in India for a long time. If food rices reach international prices then food inflation will moderate. at that point, if there is supply disruption or drought we can import food.
    Cost of land, labor, fertilizers and fuel are going up. so farmers are not motivated to produce more. The fix for higher food price is to just allow it to raise. Farmers will start farming more land and supply should rise which will bring down the price. The only way government can help is by stop hoarding farm land by investors. We need higher property taxes to discourage hoarding black money in farm lands(Government can provide tax break to farmers who really produce). This is done in most industrial nations and their farm land prices are lot lower than in India.

  • Suman Mukherjee says:

    The food inflation cannot be controlled by raising the interest rates only, there has to be other efforts—-this is a wrong idea which many economists are trying to peddle. If that was so, then inflation would have come down long back.
    When there is an aggregate demand for foods, we cannot curtail by raising the prices—-will people stop eating food? In fact making the loans cheaper might help the farmers to go for bulk purchases of seeds and other things, which might decrease the cost of production leading to the lower cost of produce.
    Moreover, credit growth has fallen all time low and investments are not happening, even when the interest rate is at such high place—-this brings us to the conclusion whether there is immediate need to cut the Repo rates or not?
    Keeping the rate high for too long has its usual side effect. What you have spoken about reducing food inflation are long term steps, but for the immediate future, I think keeping interest rate at high, when the credit growth is falling, is simply moronic.

    • You’re conflating economics with something else. If you make loans more expensive, then you reduce demand. When you reduce demand prices will fall. Food inflation is high because of high demand along with low supply. Some of this high demand is from the government itself which buys and stocks and lets food rot. Instead it should stop buying. Then farmers will be forced to cut their prices. Their input prices (seeds,f ertilizer etc) are already subsidized, but seed purchase programs can be created (they are already getting very cheap loans btw).