Food items increase WPI inflation, consumers forced to change diets

City Economy

Wholesale Price Index (WPI) inflation, mostly driven by food items, went up from 1.17% in July 2019 to 2.59% in December 2019.  Meanwhile, inflation in other categories, such as fuel and power and manufactured products, reduced in December 2019 as compared to that in July 2019.

WPI inflation in primary articles rose from 5.54% in July 2019 to 11.46% in December. Primary articles include cereals, wheat, paddy, pulses, vegetables, milk and non-food items like minerals and crude petroleum.

Nadeem Pasha, a retailer who sells onions at KR Market, informed The Observer said crowds at the market are thin on weekdays.

“I buy onions in sacks of 50 kg. Generally, each of these sacks costs Rs 1,500. But when the prices rose last year, the price of each sack went up to Rs 4,000. Customers started buying less onions, reducing  my purchase to only 15 sacks, less than the usual 1,000 kg that I buy.”

Customers like Venugopal H.B. said they have reduced the quantity of vegetables they buy for their homes. “Though onion prices have come down as of today (January 28), the consumption pattern in my home has changed. In place of the 2 kg of onions that we used to buy, we buy just 1 kg. When onions were too pricey, I stopped buying them for some time. Prices of items like garlic and ginger have increased, too. Consumption used to be based on the seasonality of vegetables earlier. But since the second half of 2019, prices are dictating our diet.”

Venugopal is not alone to complain about high onion prices.

Another consumer, Suryanarayana, said: “Onion prices have increased to such an unprecedented level that it has become unaffordable for most middle-class families. They soared to Rs 120 and have reduced to Rs 50. I expect the prices to reduce more.”

Bhagyamma, a vegetable vendor, shared: “I have seen my regular customers buy less quantities because of the price rise. Everyone has to buy vegetables as they are a necessity. But when prices rise, people buy only what they can afford. Hence, even necessities like onion and potatoes take a back seat.”

Fahaad Basha, who sells potatoes at the KR Market, said: “Everyone is focusing only on onion prices. But potatoes also showed a significant spike in 2019. Potato prices almost doubled in the second half of 2019. Previously, I used to buy 15 50-kg sacks of potatoes. Now, I buy only 10.”

Primary articles comprise only 22.61% of the total WPI weightage. The highest rise in primary articles was registered in onion and vegetables.

A commerce ministry press release dated January 14 shows that inflation was 2.59% in December 2019 compared to 3.46% in December 2018. But a closer look shows that WPI for the same period in primary articles soared from 1.375 to 11.46%.

The other two categories – manufactured products, and fuel and power – have a weightage of 64.23 % and 13.15% respectively in the index.

The release also shows WPI inflation in manufactured products was 0.25 in July 2019. It fell to -0.25% in December 2019. WPI inflation in fuel and power was -3.64 in July 2019; it rose to -1.46% in December 2019.

The categories that have shown a decline in inflation in December 2019 over July 2019 in primary articles are cereals (from 8.67 to 7.74), pulses (20.00 to 13.11) and fruits (15.38 to 3.51).

Asked why the common man should know about WPI, Venkatesh Athreya, a retired economics professor of Bharathidasan University, Tamil Nadu, informed The Observer: “The consumer is not worried if it is retail inflation or wholesale inflation. But he understands price rise. Hence, looking at inflation rates would help the common man understand the price rise in the commodities they buy.”

“WPI generally tends to understate the extent of inflation for the retail consumer mostly. Depending on the specifics of each market, a rise in WPI represents inadequately the actual rise in price for the consumer. There are a lot of methodological issues in WPI calculation as well,” he added.

The New Indian Express, on January 15, reported: “Economists have already warned of the economy slipping into stagflation, which indicates low growth and high inflation.” It also quoted a SBI report which said, “This jump in inflation will, perforce, make the RBI take a relook at the inflation trajectory.”

The Wholesale Price Index, also known as headline inflation, reflects the prices of commodities at wholesale levels. WPI, released by the commerce ministry, does not include services. The base year used to calculate WPI is 2011-12.


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