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Rising inflation cost Indian households Rs 5.8 lakh crore

Posted by Admin on July 2, 2011

http://in.finance.yahoo.com/news/Rising-inflation-cost-Indian-yahoofinancein-811909637.html

Yahoo! India Finance, On Wednesday 29 June 2011, 10:20 AM

Bangalore: Inflation has knocked the bottom out of household budgets. Now, someone has come along and actually measured how big the hole in the collective household budget really is. Rising prices of food items, besides petroleum products and commodities, have burnt a hole in the pocket of the Indian consumer during the last three years.

Surging inflation cost Indian households an additional Rs 580,000 crore (around $129 billion) during the three-year period from 2008-09 to 2010-11, a Crisil Research study said.

The study concluded that price trends of commodities in the wholesale price index favour the middle and higher income classes, rather than poor and vulnerable Indian households who spend a large part of their income on food.

The study shows that growth of private consumption expenditure in nominal terms increased to nearly 17 per cent per year during this period from 14 per cent in the preceding 3 years mainly due to the rise in food inflation. “The rise in inflation to 8 per cent per year during 2008-09 to 2010-11 from 5 per cent in the preceding 3 years eroded the purchasing power of money and inflated the consumption expenditure bill of Indian households by Rs 5.8 trillion,” said Dharmakirti Joshi, Chief Economist at CRISIL.

Crisil said contrary to the general perception, prices of several commodities declined even during periods of high inflation. “Prices of many consumer durables have declined in the last few years. If adjusted for improvement in the quality of goods, the decline would be even sharper.”

Consumers immediately feel the impact of rising inflation in food articles because these items are purchased on a daily basis. Durables are not purchased frequently and hence, a fall in their prices tends to be overlooked while forming inflation expectations, said Vidya Mahambare, a senior economist at Crisil.

Price trends of commodities in the Wholesale Price Index favour the middle- and high-income classes, rather than the poor and vulnerable Indian households, who spend a large part of their income on food.

The middle- and high-income groups benefit more from falling prices of non-food manufactured items, particularly durable goods, as they have higher disposable income to spend on other goods and services, including consumer durables and for savings.

“The poor, with limited discretionary income to spend on consumer durables, do not benefit much from the lower prices. In contrast, rising prices of food items strain their discretionary spending,” the report said.

Higher food prices should be an incentive to enhance the production of food items, but this has not happened so far. In addition to price signals, productivity improvement in food/agriculture categories would require better technology and improved investments in irrigation. In the absence of these measures, high food inflation is here to stay, the report added.

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