INFLATION WAS RAISED TO 8.

1%, BUT FOOD INFLATION WAS

LOWEST

By: BHARAT RATNA

Inflation is a rise in general level of prices of goods and

services over time. Although "inflation" is sometimes used to refer to a rise in
the prices of a specific set of goods or services, a rise in prices of one set
(such as food) without a rise in others (such as wages) is not included in the
original meaning of the word. Inflation can be thought of as a decrease in the
value of the unit of currency. It is measured as the percentage rate of change
of a price index but it is not uniquely defined because there are various price
indices that can be used

The government’s administrative and fiscal measures failed to have the

desired effect on soaring prices as inflation for the week ended May 17
moved up sharply to 8.1 per cent. Wholesale price inflation was pegged at
7.82 per cent for the week ended May 10, compared with 7.83 per cent and
7.61 per cent for the week ended May 3 and April 26, respectively, and 3.7
per cent recorded at the beginning of 2008.

Thus, as surging food and fuel prices have propelled the inflation to its
highest level in nearly four years, there are more reasons worry as the
Planning Commission, in its internal assessment, has estimated the inflation
to rise to 8.5 per cent in the next three months, before starting to come
down. The Commission expects the inflation to come down to 3.5 per cent
only by March next year.

The Commission's assessment is that after the monsoon, inflation will start
falling with the influx of food items in the domestic market and some respite
in the international food market. "The estimate of 3.5 per cent inflation is on
the basis of our expectation that agriculture production would rise to over
three per cent, thereby providing relief," the Commission says.

Whatever be the case, the continuing upsurge in the inflation is a cause of

concern for the government, even as finance minister P Chidambaram
asserting that the rising prices will not have much of an adverse impact on
the UPA government. "We are doing everything to control the situation, but I
don't think it (price rise) will have too adverse an impact on our
government," he said in an interview recently.

Surprisingly, the WPI number for March 15 was revised sharply upwards to
8.02 per cent from 6.68 per cent, the highest inflation rate since September
2004.

Chidambaram said while the average inflation in the 70s and 80s was well
over 8 per cent, the tolerance level of price rise has come down drastically.
"Since the turn of this century, I think tolerance level of inflation is only four
to five per cent," he said, adding "the moment the figure goes beyond five
per cent, there is a resentment and naturally political parties seize the
opportunity to feed this resentment.

India's food inflation lowest among 15 nations

India has been better off in managing food inflation compared to several
other developing countries in 2007-08, even as the government faces public
and political anguish over sharp rise in prices.

Prices of food articles rose by 5.8 per cent in India, the lowest increase
among 15 developing countries for the period ending February 2007-08, a
joint report of the Organisation for Economic Cooperation and Development
(OECD) and Food and Agriculture Organisation (FAO) has said.

Food prices showed the highest increase at 25.6 per cent in Sri Lanka,
followed by Kenya at 24.6 per cent and China 23.3 per cent, the report
entitled 'Agriculture Outlook 2008' said.

A record foodgrain production estimates at 227.32 million tons during 2007-

08, against 217.28 million tons last year has helped India keep food inflation
under control, experts said.

However, recent negative yield shocks in key food commodities like pulses
and oilseeds have contributed to the price increase, they said, adding that
global price rise had a spill-over affect on domestic rates as well.

However, India's food inflation still remains higher than the developed
countries like the US and Japan during the review period, the report said.

Rate of rise in food prices stood at 1.4 per cent in Japan, at 5.1 per cent in
the US and at 5 per cent in France, it noted.
For developed countries, where the price rise in food items is moderate and
the share of food in the total consumer basket is small, the contribution of
food price inflation to overall inflation is correspondingly moderate.

But as would be expected, the impact of food price inflation on overall

inflation in developing countries is much larger, the report added.