Editorial

Published: Dec 29, 2021
Updated: Dec 29, 2021

Inflation booms, govt dozes

Under the pretext of focusing all its energies on tackling Covid-19 and the host of problems created by the pandemic, the Union government has turned a deaf ear to the other serious problems facing the economy. Perhaps the most prominent of these is the runaway inflationary price spiral.

During the month of May, the headline number for retail inflation has surged to a sixmonth high of 6.3 per cent -- above the upper limit of the Reserve Bank of India's inflation band of 2 to 6 per cent -- for the first time after 5 consecutive months of remaining within the band.

The surge in the headline number has been broad-based as each component of the CPI basket has witnessed an uptick in the yoy growth number as compared with the previous year. Food has spurted to a six-month high and fuel has surpassed even its 9-year high. Significantly, core inflation ,which had remained sticky throughout fiscal 2021, has now inched up to its highest level in the past seven years.

Interestingly, this time retail inflation is in line with the wholesale price rise. The WPI has inched up to a record high of 12.9 per cent in May 2021, from 10.5 per cent in April 2021 and a deflation of 3.4 per cent in May 2020. The surge in wholesale inflation is mainly due to the sharp increase in fuel and power prices, which have zoomed to their highest level in the 2011- 12 base period series. Again, elevated prices in the manufacturing segment are indicative of the strengthening purchasing power of manufacturers. Higher factory gate prices in the manufacturing segment are representative of firmness in the pricing power of corporates.

Interestingly, the inflationary price spiral has been raging in a period when the economy is in bad shape with a sharp slide in the pace of growth. Unfortunately, the spurt in inflation has come at a time when people, especially the middle- and lower-income groups, have been hit hard on account of widespread job losses, reduced salaries and fears of a third wave of the coronavirus. The unprecedented spurt in prices of essential commodities like food, edible oils and pulses, and the spurt in prices of LPG, has imposed an additional burden on the budget of the common man.

Of course, one of the major factors behind the surge in inflation is the steep rebound of crude oil prices, which in turn has pushed up prices of petrol and diesel to unheard-of levels, not only in India but throughout the world. Unfortunately, the government has been keeping mum while large sections of Indians are being crushed under the heavy burden of high prices.

It is really intriguing that the Narendra Modi government has taken edible oils out of the list of essential commodities, leading to edible oil prices seeing a spike of 35 to 70 per cent. Rising prices and government apathy have made the lives of the masses miserable. Indians by and large have never seen such miserable conditions in the past, according to old-timers. They think back with nostalgia to the extremely affordable conditions of 70 years ago, something that today's younger generation would find hard to believe.

Unfortunately, the retail inflation data also shows that rural inflation continues to remain high at 6.5 per cent while urban inflation is at 6 per cent. This is indeed a cause of concern for the well-being of a majority of the country's population.

The unprecedented surge in inflation has posed a stiff challenge for the RBI, which is already battling to put growth back on track. The country's central bank now faces the unenviable dilemma of whether to target growth or the inflationary spiral! Over the past few months, the Modi-led BJP government has gone into hyper-drive in fighting elections across the country. Will it, or can it, do a reality check even at this late hour and show the same determination and drive in tackling the challenge of unbridled inflation which is sounding the death knell for the common man?