The Assocham study has identified that the present inflationary pressure has originally started in the form of food and fuel prices hike in the first half of the year 2009-10. By the second half of 2009-10, mainly helped by the persistent supply side pressures and bad monsoons, it was generalized.
Though in the month of November 2010 owing to some transient reasons like new crop arrivals in the markets, inflation has temporarily come down, the long term supply side constraints coupled with higher level of domestic demand pressure and hardening material and fuel prices in the external markets will not allow the inflation to soften in the near future.
The study has stated that the inflation expectations are presently well anchored and ‘Inflation Expectations Survey of Households’ conducted by Reserve Bank proved the same. The survey assessed the inflation expectations of 4000 households across 12 cities for the October-December quarter as well as for the year ahead.
It was found that households expect inflation to rise further by 20 and 60 basis points during the next quarter and the next one year respectively. The survey revealed also that expectations of general price rise are mainly influenced by movement in prices of food products, housing and non-food products.
As regards the industrial sector, continued hyper-inflation has been putting pressure on the Indian manufacturing sector. The much higher increase in the prices of primary products, wages and fuel, as compared to that of manufactured products have been eroding the price cost margins of firms
These inflation figures, says the chamber study, indicate the play of both domestic and external factors. Prices of fuel and primary products have substantial external and policy influences. Manufacturing inflation reflects the performance of the domestic private sector as also has influenced by the exchange rate and global inflationary conditions.
The year-on-year inflation rates given in Table 1 show that the prices of primary articles that had started picking up in the wake of expected economic recovery in 2009 continued with that trend in the current fiscal as well. Prices of the main inputs of manufacturing sector, the primary articles, increased by 18.0 percent during April-November 2010 on year-over-year basis.
Higher prices of primary articles, especially rise in food prices, indirectly also effects the production by first pushing up the cost of living which, makes labour to ask for wage hikes and higher wage costs will in turn result in soaring cost of production.
As for the fuel inflation, it has also registered 12.5 percent in the first eight months of the current fiscal as against a negative growth in the corresponding period of the previous year. Thus, if we consider manufacturing as the process of transforming primary articles into finished products by working on them with the help of labour and machines that work on fuel, all the three major operating costs of manufacturing sector viz., raw material cost, labour and fuel costs are all increased owing to persistence of higher inflation rates.
According to ASSOCHAM, presently there exists a huge gap between the price received by the producer and the price paid by the consumer. This gap needs to be filled by creating transport and storage infrastructure to the required extent. The government needs to regulate the functioning of the agriculture markets.
Assocham study has found that a long chain of intermediators benefit from the gap between the price the farmer gets and the price the consumer pays. Besides these intermediators have no stake in the supporting the farmer with required inputs or giving him timely and useful market information.
This is the basic cause for a large number of government schemes falling flat on the farm front. Many farmers commit suicide because they have no one to guide them through the intricacies of the tricky market for farm products and also from failure to gain effective farm practices and inputs.
If the logistics and storage side is not addressed adequately by the Government at the centre and the states the food inflation will continue to rise even may touch again to very alarming rate and generate tremendous disaffection.
Though in the month of November 2010 owing to some transient reasons like new crop arrivals in the markets, inflation has temporarily come down, the long term supply side constraints coupled with higher level of domestic demand pressure and hardening material and fuel prices in the external markets will not allow the inflation to soften in the near future.
The study has stated that the inflation expectations are presently well anchored and ‘Inflation Expectations Survey of Households’ conducted by Reserve Bank proved the same. The survey assessed the inflation expectations of 4000 households across 12 cities for the October-December quarter as well as for the year ahead.
It was found that households expect inflation to rise further by 20 and 60 basis points during the next quarter and the next one year respectively. The survey revealed also that expectations of general price rise are mainly influenced by movement in prices of food products, housing and non-food products.
As regards the industrial sector, continued hyper-inflation has been putting pressure on the Indian manufacturing sector. The much higher increase in the prices of primary products, wages and fuel, as compared to that of manufactured products have been eroding the price cost margins of firms
These inflation figures, says the chamber study, indicate the play of both domestic and external factors. Prices of fuel and primary products have substantial external and policy influences. Manufacturing inflation reflects the performance of the domestic private sector as also has influenced by the exchange rate and global inflationary conditions.
The year-on-year inflation rates given in Table 1 show that the prices of primary articles that had started picking up in the wake of expected economic recovery in 2009 continued with that trend in the current fiscal as well. Prices of the main inputs of manufacturing sector, the primary articles, increased by 18.0 percent during April-November 2010 on year-over-year basis.
Higher prices of primary articles, especially rise in food prices, indirectly also effects the production by first pushing up the cost of living which, makes labour to ask for wage hikes and higher wage costs will in turn result in soaring cost of production.
As for the fuel inflation, it has also registered 12.5 percent in the first eight months of the current fiscal as against a negative growth in the corresponding period of the previous year. Thus, if we consider manufacturing as the process of transforming primary articles into finished products by working on them with the help of labour and machines that work on fuel, all the three major operating costs of manufacturing sector viz., raw material cost, labour and fuel costs are all increased owing to persistence of higher inflation rates.
According to ASSOCHAM, presently there exists a huge gap between the price received by the producer and the price paid by the consumer. This gap needs to be filled by creating transport and storage infrastructure to the required extent. The government needs to regulate the functioning of the agriculture markets.
Assocham study has found that a long chain of intermediators benefit from the gap between the price the farmer gets and the price the consumer pays. Besides these intermediators have no stake in the supporting the farmer with required inputs or giving him timely and useful market information.
This is the basic cause for a large number of government schemes falling flat on the farm front. Many farmers commit suicide because they have no one to guide them through the intricacies of the tricky market for farm products and also from failure to gain effective farm practices and inputs.
If the logistics and storage side is not addressed adequately by the Government at the centre and the states the food inflation will continue to rise even may touch again to very alarming rate and generate tremendous disaffection.
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