AA Edit | Inflation an opportunity in disguise for government?

A day after government data revealed that retail inflation has shot up to a 15-month high of 7.4 per cent, Prime Minister Narendra Modi addressing the nation from the ramparts of the Red Fort promised that his government will take necessary action to tame price rise.

Citing global developments such as the Russia-Ukraine war, Mr Modi blamed the rising prices in the country on imported inflation.

While higher cost of imported fuel particularly has increased costs on logistics across the board in the economy, the biggest contributor to the inflation in July, however, was food items which are produced locally.

According to data released by the Union ministry of statistics and programme implementation for the month of July, the annual inflation in the vegetables basket was at 37.44 per cent, spices at 21.63 per cent, pulses and products at 13.27 per cent, and cereals and products at 13 per cent.

The consumer price index or retail inflation is based on goods and services that people buy routinely. The food and beverages segment, therefore, contributes about 54 per cent to the retail inflation.

The CPI-based inflation in the food basket was at 11.51 per cent in July, significantly up from 4.55 per cent in the preceding month, and 6.69 per cent in July 2022.

According to data from the department of consumer affairs, prices of potatoes, onions, and tomatoes have risen 17 per cent, 24 per cent, and 360 per cent increase, respectively, over the last 3.5 months.

The government has already taken several steps such as banning imports of rice among others and also imported tomatoes from Nepal to cool down the prices.

Unlike imported inflation, retail inflation, which is greatly influenced by cereals and vegetables, is a seasonal phenomenon, dictated by rainfall and production patterns. This inflation corrects itself when farmers step up production to cash in on higher prices and is generally not taken seriously by policymakers.

Retail inflation affects people, who come out to vote on the polling day, are the most affected by higher inflation and no political party can ignore it when elections are close.

In the next three months, Telangana (8.55 per cent inflation), Rajasthan (9.66 per cent), Madhya Pradesh (6.73 per cent), Chhattisgarh (6.05 per cent) and Mizoram will go to polls, and no political party could ignore inflation because it affects people's pockets directly.

However, the fight against inflation may not be easy for the government despite all its might because rainfall has been deficient in August so far. It is likely to put upward pressure on food prices, amid the lags in kharif sowing across some crops.

According to experts, oil cartel Opec's crude oil supply cuts could increase fuel price from $75 to $85 by the end of 2024, which could set off further price pressure across the economy.

Food inflation caused by rains and fuel price rises led Opec moves, coming bang in the middle of crucial Assembly elections and three months ahead of the Lok Sabha polls, would be too difficult for any government to handle.

The Indian economy was also facing imported inflation pressures caused by fuel rise and dollar appreciation during the UPA-2 government. The current uptrend in retail inflation is an opportunity for the Narendra Modi government to show people how it is different from its predecessor.