Keep a watch on food inflation
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MEANINGS are given in BOLD and ITALIC
The latest inflation (a state of expansion or increase in size especially by injection of gas) readings based on the Wholesale Price Index and the Consumer Price Index are a cause for concern (that which affect one’s welfare or happiness) . While the annual gain in wholesale prices hit a 23-month high of 3.55 per cent in July, retail inflation quickened past the Centre’s new Monetary ( consisting of money) Policy Framework’s upper limit for tolerance to 6.07 per cent. Food costs — a key component in both indices — were the main culprit. Inflation in the food category of the CPI accelerated (progressing faster than is usual) to 8 per cent, and in the case of the WPI surged to a 31-month high of 11.8 per cent.
Some economists and the Reserve Bank of India have pointed to the forecast (to estimate how something will be in the future) of normal rainfall this year, and the improvement in sowing (molten state into molds) on the back of the steady progress of the monsoon, as clear indicators that the outlook for supply can only improve going forward. It would, however, be worthwhile to consider some of the risks attached to these assumptions. For one, any beneficial monsoon impact on the predominantly (most importantly) agrarian (of relating to , ownership) rural economy is bound to result in an uptick (a small change upwards) in rural wages, and by extension demand-side consumption pressures. According to a January 2016 International Monetary Fund working paper on ‘Understanding India’s Food Inflation: the Role of Demand and Supply Factors’, rising real rural incomes have had the largest impact on food inflation.
This is particularly so as the large weight on food in household expenditure has meant that robust (vigorous sound ; rough ; rude) real income growth has tended to translate into substantial (actually existing ; imaginary) demand-side pressures that far outpace (to go faster than someone else) the supply-side gains. This stickiness of food costs can undermine (to make difficult to accomplish) the steady gains in the fight against price gains, a battle that must be fought since inflation ultimately ends up being a tax on the poor.If the economy is to maintain the current growth impetus (to press on) at a time when global demand is still fairly lacklustre (having no shine ; dull) , it will be essential that domestic consumption continues to be a key engine of economic momentum.
It is precisely this consumption demand that will get a fillip (a short, quick movement) from the increased salary and pension payouts that the government will make as part of the implementation (the process of moving an idea from concept to reality) of the Seventh Pay Commission’s recommendations and the One Rank One Pension plan. The Centre will have its task cut out in maintaining fiscal (related to the treasury of a country, company) discipline if it is to ensure that increased expenditure from its side doesn’t end up fanning (a very small fragment) inflation expectations at a time when monetary authorities are already grappling (to hold it strong) with the challenge of containing the food costs-led price gains. And with Prime Minister Narendra Modi having categorically backed the 4 per cent retail inflation target in his Independence Day speech this week, the political stakes to keep price gains under check couldn’t get higher.
