Deflation is for real despite rising food prices, says chief statistician

24 October 2015

There is a lingering trend of deflation, which largely affects primary and intermediate goods and do not get immediately reflected in retail prices of several manufactured items, says the country's chief statistician TCA Anant.

While stating that the rise in prices of onion and pulses are more seasonal and supply-related, Anant echoed the finance ministry's concerns over deflationary trends in the economy, in an interview with The Hindu BusinessLine.

Inflation has by and large been contained and prices are largely in control, Anant said, adding that inflation in onions is largely due to seasonality, but high prices of pulses pose long-term challenges, he said.

The finance ministry has been raising concerns over deflation as the wholesale price index (WPI) has been negative for the last 11 months. This, he said, is a matter of concern because there are a significant number of manufactured and primary products whose prices are declining.

WPI covers a spectrum of commodities, which are traded in the wholesale market  - those which enter the household consumption baskets, as well as a vast number of primary materials and intermediate goods, including items of final consumption.

While a fall in prices sounds good for the consumer, for those involved in the manufacture of these commodities, a fall in prices would mean a squeeze on margins.

Deflation can be a source of concern even though it is not, in aggregate terms, in final goods and in the consumer basket.

Consumption items, especially food, continue to see positive inflation, but there is a set of items which is seeing negative inflation and that can be grounds for concern, he said.

Whereas CPI covers goods and services that enter into the consumption of household, WPI covers a much wider basket of commodities which are traded in the market, which accounts for the divergent trends in wholesale price inflation and consumer price inflation.

However, consumer food price inflation has also remained largely moderate except in items like onions and vegetables.

Also, according to Anant, it is difficult to infer any conclusions from data of a one month period or even that from five months.

A much longer time series is required to study food price inflation, where there is a high element of seasonality.

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