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Several worry lines showing up in inflation numbers –

Inflation, growth of food sales, growth of market basket or consumer price index concept (Source: ShutterStock)

For a government hemmed in by wobbly economic growth, a deadly Covid-19 second wave and a seemingly shaky political stock, the latest price trends have created an additional pain point.

Retail inflation measured by the consumer price index (CPI) grew by a worrying 6.30 per cent in May, mirroring how getting by has got harder for Indians even in the middle of the second wave.

The price curve has been steadily rising since the turn of the new year. The CPI-based inflation, which is a gauge to measure changes in shop-end prices, has stubbornly remained above the 4 per cent mark since January.

Wholesale price index (WPI)-based inflation also galloped to a record high of 12.9 per cent in May, although part of it may have been driven by a low base effect.

Wholesale inflation, which is a kind of the Indian version of a producers’ price index, was (-) 3.37 in May last year, partly magnifying the costliness of products on an annualised basis.

A closer examination of retail inflation trends, however, throws up interesting and possibly worrying, foreshadows.

There has been a sharp spike in the inflation of protein-based products. Prices of meat products and fish, eggs, and fruits have persistently grown at double or near double digits since January this year.

If this is not a happy augury, the evidence for pulses is even worrying. Prices of pulses, the most common source of protein for most Indians, have risen at more than 10 per cent for the last several months.

In May last year, a kilogram of tur dal was retailing at an average (month-end) of around Rs 101 in Delhi, compared to about Rs 117 this year, translating into a price vault of nearly 17 per cent.

The trends are even more disturbing on edible oils. The latest price data shows that oil and fats, as a product category, has grown at over 20 per cent on an annualised basis since January. In May 2021, retail prices of such products, nationally, grew 30.84 per cent compared to May 2020.

Data collated by the consumer affairs ministry’s price monitoring cell mirrors this trend. In May last year, a litre of mustard oil in Delhi was retailing at an average price of Rs 132. This soared to Rs 175.23 in May this year.

Core retail inflation, which essentially is a proxy to measure how costly non-food and non-fuel products have become, has surged, rather unexpectedly, to 5 per cent in May, while core wholesale inflation was at a 25-year high of 10 per cent in May 2021.

Fuel prices are retailing at record levels with both diesel and petrol selling at above Rs 100 a litre at pumps in many states. This could only push up overall inflation further as high transport fuel prices will knock up costs of ferrying goods across the country.

There’s another problematic piece of data, although it is a one-off currently. Rural inflation in May this year outpaced urban. Overall rural retail inflation was 6.48 per cent in May compared to 6.04 per cent in urban areas.

This appears a little counter-intuitive. Given the severity of the pandemic’s second wave in rural areas, it would have been logical to expect demand for products in villages to collapse, pushing down overall prices. The data, however, shows the opposite.

One plausible explanation could be that the pandemic’s second wave caused major supply disruptions as getting products to villages turned out to be a logistical challenge because of state-wise lockdowns and other barriers.

Most villages were spared from lockdowns last year. That wasn’t the case in the second wave as the pandemic swept through the hinterland. This could also partly explain the rise in prices of protein items, particularly pulses, eggs, fish and fruits as sourcing these from village mandis may have been severely affected due to the pandemic-induced disruptions.

For the government and its key economic managers, these numbers should be scary. The broad signals from the price trends indicate that no amount of demand side management will help rein in inflation when demand is muted in any case. This is supply side inflation and will require deft, efficient solutions through a mix of import-aided stocks and proficient logistical management.

Fortunately, this year summer rains are likely to be normal, the Met department has forecast, brightening prospects of bumper crops and economic recovery.

Two-thirds of Indians depend on farm income and over 40 per cent of our cropped area does not have any form of irrigation other than the rains. Millions of farmers wait for the rains to begin summer sowing of major staples, such as rice, sugar, cotton, coarse cereals.

Half of India’s farm output comes from summer crops dependent on the monsoon. For good farm output, the rains have to be not just robust but also evenly spread across states.

Plentiful rains this summer are crucial not only to prevent food prices from further fanning the runaway headline inflation rates, but also to ensure farm incomes remain steady to offset the pandemic’s adverse effects in villages.