Currently, retail prices are shooting up across the country although the price indices do not give such an impression. High retail prices are creating holes in the common man’s pockets. However, the government’s latest wholesale price index showed a negative price growth of 4.12 percent (provisional) in June against another negative growth of 3.48 percent in May. And, the CPI inflation rose to only 4.81 percent in June 2023, from 4.25 percent in May this year.

Officially, the wholesale price inflation dropped last month “primarily due to fall in prices of mineral oils, food products, basic metals, crude petroleum & natural gas and textiles,” recorded the economic advisor’s office in the union commerce and industry ministry. These official stats seem to confuse the general public. Their monthly expenses on edible oils, food products, including wheat and rice, daily dire necessities, and costs of travel and education among others have substantially gone up in recent months. Life has become unbearably difficult for the common man under the rising inflation pressure. Naturally, the reliability of such a downward WPI, having little correlation with on ground consumer prices, is a suspect.

Compare the current ground level of price inflation with what was officially recorded a year ago in June, when WPI jumped to 30-year high of 15.88 percent in May. The government then reported that the headline retail inflation rate fell to a 25-month low in May despite the wholesale price index (WPI) showing deeply in the red. The government-claimed decline in the retail retail rates appeared to be more statistical than real. Last week, the West Bengal government decided to raise the minimum support price of paddy from Rs 2,040 to Rs.2,183 per quintal. If a farmer sells paddy at a centralised procurement centre (CPC) or mobile CPC or camps, the price will be Rs 2,203 per quintal.

Bengal is the country’s biggest paddy producer. All other states are expected to follow. This will substantially raise the prices of rice across the country. Already, the price of rice, a staple food of a large section of Indians, has increased by 12 percent this year, including three percent in June alone. The wheat price per quintal in Delhi went up from Rs.2,260 in April to Rs.2,520 at the May end. The prices of cereals, milk, eggs, spices, prepared meals, snacks, edible oils, vegetables, fish, meat and sweets, as well as the costs of education, personal care items, and household goods and services continue to pinch consumers’ pockets.

Maybe these price indices are more to influence RBI’s interest rate policy and protect the government’s image as a pro-active inflation fighter than to reflect the ordinary consumers’ concern. Interestingly, WPI and CPI are created by two different ministries of the government. WPI measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to others. Published by the ministry of commerce and industry, it is the county's most used inflation indicator. The base year of the current WPI was revised from 2004-05 to 2011-12. The new series of WPI is effective from 2017. WPI is supposed to capture the average movement of wholesale prices of goods. It is primarily used as a GDP deflator. The new WPI reckons only basic prices and does not include taxes, trade discounts, transport and other charges.

On the contrary, the National Statistical Office-created CPI measures price changes at retail levels. Although in reality, such price changes could be tricky, varying from states to states and markets to markets. There are four types of CPI, comprising industrial workers, agricultural labourers, other rural labourers, and rural-urban workers combined. Of them, the first three are compiled by the Ministry of Labour and Employment. The last one is compiled by NSO under the Ministry of Statistics and Programme Implementation. Although the base year for CPI is supposed to be 2012, recently the union labour ministry released the new series of CPI for industrial workers with 2016 as the base year. Incidentally, the government’s monetary policy committee uses CPI data to control inflation. RBI also uses CPI as its key measure of inflation.

During the current year, prices of several industrial products such as coal, steel, cement, power, specific petro-products, paper and cooking gas have gone up. The lower import cost of crude oil from Russia was not passed on to the country’s retail consumers of petrol and diesel. The latest coal price increase has brought a chain effect on the prices of all products. Surprisingly, the government-computed price indices do not quite reflect the development. In contrast, the official retail inflation rate in June remained below RBI’s upper tolerance threshold of six percent for consumer price rise. With effect from May 31, Coal India, the country’s near monopoly coal producer, raised non-coking or thermal coal prices by eight percent.

Thermal coal is used to generate electricity. Thermal power constitutes nearly 70 percent of the country’s electricity generation and consumption. The Delhi Electricity Regulatory Commission has recently allowed BSES Yamuna Power Limited to charge 9.42 percent more on top of the prevailing rates, BSES Rajdhani Power Limited got 6.39 percent, and New Delhi Municipal Council two percent. Prices of ferrous and non-ferrous metals are going up. Cement prices are also going up on a pan India basis. Gold prices have lately moved up sharply from Rs. 54,656 per 10 gram on December 31, last year, to Rs.59,106 on July 13, this year, rising about 8 percent.

This raises the question of reliability of India’s price indices. The substitution bias, introduction of new goods, and unmeasured quality changes often fail to properly state the real cost of living. The matter is important as the government uses these indices to adjust for changes in the overall level of prices. In the past, top Indian bankers and economists had raised concerns about the reliability of the country’s inflation data. Inflation has repeatedly found mention in the RBI monetary policy committee’s reviews. RBI projects FY24 inflation at 5.2 percent, and is optimistic that CPI inflation will moderate this fiscal. However, rising retail price trends till now are yet to stand by such an optimism.(IPA Service)