Surge in Food Inflation
Context:
Food inflation in India hit a 10-month high of 7.4% in May, driven by steeper prices for vegetables, fruits, pulses, and cereals.
Relevance:
GS-03 (Economy)
Key Highlights:
- India’s wholesale price inflation accelerated to a 15-month high of 2.61% in May, more than double April’s rate.
- There was a resurgence of price increases in manufactured products after 14 months of deflation.
- Heatwaves in country caused the inflation rate for vegetables to spike to a nine-month high of 32.4% and a six-month high of 5.8% for fruits.
- Economists attribute the spikes in vegetable prices partly to supply shortfalls, exacerbated by the heatwave, which may sustain inflation pressure until the next crop arrives.
- Retail food inflation is expected to remain above 8%, and wholesale prices are predicted to rise further to 3.5% in June, influenced by increasing global food and industrial input prices.
Wholesale Price Index (WPI):
- Definition and Purpose: The Wholesale Price Index (WPI) measures the price of goods at the wholesale stage, where goods are sold in bulk and traded between organizations rather than consumers.
- Components of WPI: The index comprises 697 items, categorized into Primary Articles (117 items), Fuel and Power (16 items), and Manufactured Products (564 items).
- Inflation Measurement: The rate of inflation for a given year is determined by the percentage increase in WPI over that year.
- Current Base Year: The base year for the current WPI calculation is set at 2011-12.
- Significance: WPI is a crucial measure of inflation in India, reflecting the changes in prices at the wholesale level.
- Base Year Concept: The base year is a reference point used to calculate inflation rates. The indices are set to 100 in the base year to facilitate comparison over time.
- Example of Base Year Calculation: If a basket of goods costs Rs 2 lakh in the base year and the index is 100, an increase in the price to Rs 2.2 lakh in the next year would change the index to 110, indicating a 10% inflation rate.
- Base Effect Explanation: The base effect describes how the choice of a base year or reference point impacts the comparison of data points, affecting the interpretation of inflation and other economic indicators.
- Impact on Data Analysis: The base effect can influence the ratio or index value between two points in a time-series data set, affecting the perceived rate of inflation.
Facts for prelims:
- WPI vs. CPI: Both WPI and the Consumer Price Index (CPI) are used to measure inflation, but WPI focuses on wholesale prices, while CPI measures the price changes from the consumer perspective.
- The Office of the Economic Adviser in the Department of Industrial Policy and Promotion, Ministry of Commerce & Industry is responsible for compiling WPI and releasing it.
