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The person who is devoted to paperwork has lost the
initiative. He is dealing with things that are brought to his
notice, having ceased to notice anything for himself.
He has been essentially defeated in his job.
— Prof. C. Northcote Parkinson (1909-1993), British naval
historian and author of some 60 books, including the most
famous 'Parkinson's Law'
DOUBLE-DIGIT INFLATION
Unnerving the government, the annual WPI-based inflation has escalated
to 10.6 per cent in June, from 10.2 per cent in May and 9.6 per
cent in April. The actual inflation measure based on final data, as
against provisional data now available, could be further higher given the
fact that price escalation based on the final data worked out to 11.2 per
cent in April, against 9.6 per cent in terms of provisional data and 11 per
cent in March against 9.9 per cent tentatively assessed. Though food
articles too had some share, underestimation of inflation during the first
four months of the current calendar year was confined largely to non-food
articles, minerals, cotton textiles, cement, and iron and steel, which are
inputs to manufacturing industries. Reflecting the dominance of food articles,
which has driven WPI-based inflation, consumer price index numbers
for industrial workers and urban non-manual employees are running
still higher at around 14 per cent.
The primary articles witnessed 16 per cent rise in composite WPI, fuel,
power and lubricants (14 per cent) and manufactured products (6 per
cent); all components running much higher than the 5.5 per cent baseline
inflation projected for the year by RBI. The annual price rise has
ranged from over 50 per cent in acids (79 per cent), phenol (76 per cent),
fire clay (75 per cent), raw rubber (74 per cent), ginger (51-74 per cent),
moong and urad (62 per cent), papaya (58 per cent), sugarcane (53 per
cent), sweet potato (52 per cent), switchgears (51 per cent) etc. and over
100 per cent in turmeric (197 per cent), cardamom (182 per cent),
guava (174 per cent), epoxy resins (147 per cent) etc. to a massive
decline in products that include vermiculite and magnesite (60-62 per
cent), MS/SS ingots (39 per cent), PVC insulated cables (32 per cent)
and ACSR conductors (30 per cent). Nearly a fourth of the WPI basket of
435 commodities practically remained unchanged on annual basis.
Looking at more recent trends, we find that in Q1 inflation at aggregate
level has kept the annual pace. Food grain and food product
prices were running lower in Q1, though fruits and vegetables turned
costlier. Mineral oil prices rose less than the annual pace. Nevertheless,
non-food and non-fuel product prices, broadly forming core inflation,
escalated further. This includes product subgroups like tyres and
tubes, manmade textiles, heavy inorganic chemicals, fertilisers, epoxy
resins, iron and steel, CR coils and sheets, alloy steel casting etc.
What do we deduce from this analysis of inflation? Though food prices
have eased and these would slide in coming months, mineral oil prices
would keep the pace. Worryingly, non-food and non-fuel price rise
already around 7-8 per cent, may remain stubborn. And, it is this uncomfortably
high core inflation that RBI, which has donned the mantle of containing
price rise through monetary measures, is concerned about.
Whereas there is always a debate on the effectiveness of monetary
tightening in controlling inflation, sans the negative impact on real economy,
whose growth is a dire need at this juncture, it would appear that,
left on its own, RBI would take further monetary tightening measures in
its Q1 monetary policy review due in a few days.
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