Business Line

Bangalore: Rice, pulses and edible oil have contributed in a big way to urban inflation since September 2006. Their price rise was way above overall consumer price inflation in urban India.

While inflation in rice and arhar dal prices sustained itself over two years, edible oil prices increased sharply in 2007, but moderately in 2008. The rise in wheat atta and goat meat prices has been modest in comparison. A shift to wheat and meat can be expected if this trend continues.

Cereals account for a little under a fourth of spending on food in the case of the average urban citizen. High rice prices would impact the nutritional status of the urban poor, whose consumption of cereals exceeds a fourth of their food outlays.

Rise in inflation

The consumer price index for industrial workers (CPI-IW) crossed the five per cent mark in April 2006 and has been above that ever since.

The average reading of CPI-IW was 123 in 2006 and 131 in 2007 (2001=100), implying that urban consumer prices rose by 6.5 per cent in the latter year.

The average reading of CPI-IW for January-November 2008 was 141. Assuming this to be the annual average, urban consumer prices increased by 7.6 per cent in 2008. Food articles account for little under half the weight of the CPI-IW.

The fact that inflation increased sharply in 2008 is also borne out by a smaller sample of 12 towns and cities.

These cities are (figures in parenthesis are CPI-IW inflation rates in September 2008 and September 2007): Hyderabad (12.9 per cent and 5.1 per cent), Mercara (15.7 per cent and 5.2 per cent), Chandigarh (9 per cent and 4.7 per cent), Guwahati (10.7 per cent and 3.4 per cent), Munger-Jamalpur (7.1 per cent and 8.5 per cent), Bangalore (13.9 per cent and 7.9 per cent), Chhindwara (10.7 per cent and 5.3 per cent), Mundakayam (15.5 per cent and 4 per cent), Kolkata (5.8 per cent and 10.4 per cent), Bhavnagar (3.8 per cent and 8.1 per cent), Jaipur (9.5 per cent and 6.2 per cent) and Sholapur (7 per cent and 13.6 per cent).

In September 2008, the overall rate of increase in CPI-IW was 9.77 per cent against 6.4 per cent in September 2007. Urban inflation entered into double-digit territory after September 2008, touching 10.45 per cent in October, November and December.

Food prices in September 2008, September 2007 and September 2006 in these 12 towns and cities point to a runaway rise. Rice prices rose at an average rate of 27.9 per cent in these towns in September 2008 over the corresponding month in the previous year and 33.8 per cent over September 2006, much higher than the rise in CPI-IW.

Arhar dal prices were up 20.4 per cent over September 2007 and 41 per cent over September 2006. Groundnut or mustard oil prices rose 14.4 per cent in September 2008 over September 2007 and 44.5 per cent over September 2006, suggesting that the price spike occurred more in 2007 than in 2008.

However, goat meat prices rose 8.8 per cent in September 2008 on an annual basis and 17.4 per cent over two years.

The rise in wheat atta prices was moderate in comparison, increasing by 9.5 per cent in September 2008 over 2007 and 17.85 per cent over September 2006. High prices of rice and pulses were common to towns that experienced high and moderate inflation in 2008. With food prices hardening across the country, the difference between cheap and expensive towns could perhaps be on account of urban services, which account for about a fourth of the CPI-IW.