Opinion DC Comment 21 Apr 2022 DC Edit | Middle cla ...

DC Edit | Middle class faces inflation heat

DECCAN CHRONICLE. | DECCAN CHRONICLE
Published Apr 21, 2022, 11:07 pm IST
Updated Apr 21, 2022, 11:07 pm IST
The retail inflation index is designed based on people’s consumption patterns, which also includes essential services. (Representational Image/ PTI)
 The retail inflation index is designed based on people’s consumption patterns, which also includes essential services. (Representational Image/ PTI)

The Central government has released the numbers of the Wholesale Price Index (WPI) for March 2022, which had shot up to an insane figure of 14.55 per cent, while the retail inflation — also known as the Consumer Price Index (CPI) — was still hovering at around half the wholesale inflation. The retail inflation, which stood at 7.68 per cent in March, was in tune with the changing global business environment which was disturbed by higher crude oil prices and supply disruption caused by China’s lockdowns. The wholesale inflation numbers, however, appear to hurl us back into the socialist heyday in the pre-liberalisation era, or the final months of the United Progressive Alliance-2. One wonders why such divergence, and with such a wide range? The answer lies in the make-up of both indices. The retail inflation index is designed based on people’s consumption patterns, which also includes essential services. The wholesale price index, on the other hand, is focused only on goods, where manufactured products have a two-thirds weightage.

A closer look at the March WPI data shows that though fuel prices had, at 34.52 per cent, risen the most, it was manufactured products that contributed the most to the spike in wholesale inflation. It also indicates that manufacturers are passing on the impact of high fuel prices and global supply shortages to consumers. Unless the rise in inflation is arrested immediately, it will have a spillover effect on wages, which ultimately results in a higher cost of services.

One of the tools that RBI employs to tame inflation is the higher interest rate. However, it cannot drop its accommodative monetary policy, because higher rates cannot address supply-side inflation. All that the government could do is wait till Russia and China decide to salvage the global economy with the former ending its Ukraine war to let fuel prices cool down, and the former stopping its Covid lockdown to allow global supply to be restored. Until then the government could continue the free supply of food grains to the poor while praying to God to protect it from the wrath of the middle classes, who would be the most affected by inflation.

...




ADVERTISEMENT

More From DC Comment

-->