The easing of vegetable prices over the past fortnight may not help keep inflation under check as the sudden spurt in sugar prices could be a dampener considering its high weightage in the Wholesale Price Index (WPI).
Sugar has a weightage of 3.5 per cent in the wholesale price index — among the highest for any commodity — in the WPI basket. As a result, even a small rise in sugar prices could have a perceptible impact on overall inflation. But given that sugar prices have risen sharply, its impact on overall inflation, too, could be significant.
Sugar prices have been rising steadily since the beginning of FY10. Prices rose 39 per cent during April-November 2009 fuelled by a combination of factors. In addition to a shortfall in production and lower stocks for the second consecutive year, the demand for the sweetener has also been rising consistently. The relative contribution of sugar to headline inflation was 99% during this period.
Though there seemed to be some stability in December on account of new arrivals, sugar prices have again started spiralling since the beginning of the new year. The wholesale price of sugar has risen by 8.5 per cent (from Rs 38 a kg to Rs 42 a kg) in just a week’s time on account of lower estimate of sugar output in the country, especially in UP (Uttar Pradesh) — a major centre for sugar production — and due to the slower pace of imports.
If the rise in sugar price continues unabated, then it may wipe off the positive effect of easing of prices of other food articles. But the impact of high sugar prices may not be visible in the forthcoming WPI numbers as it will be for the month of December when food prices had softened marginally. But the inflation figure for January will be relatively high capturing the impact of higher sugar prices.
Sugar prices may continue to rule firm on account of widening of the demand supply gap and higher import costs with global prices also surging. Given this possibility, the prospect of reining in inflation in the coming months purely on account of market forces appears to be slim.
Source : http://economictimes.indiatimes.com/Stocks-in-News/Tough-task-to-keep-prices-under-check/articleshow/5418899.cms
Sugar has a weightage of 3.5 per cent in the wholesale price index — among the highest for any commodity — in the WPI basket. As a result, even a small rise in sugar prices could have a perceptible impact on overall inflation. But given that sugar prices have risen sharply, its impact on overall inflation, too, could be significant.
Sugar prices have been rising steadily since the beginning of FY10. Prices rose 39 per cent during April-November 2009 fuelled by a combination of factors. In addition to a shortfall in production and lower stocks for the second consecutive year, the demand for the sweetener has also been rising consistently. The relative contribution of sugar to headline inflation was 99% during this period.
Though there seemed to be some stability in December on account of new arrivals, sugar prices have again started spiralling since the beginning of the new year. The wholesale price of sugar has risen by 8.5 per cent (from Rs 38 a kg to Rs 42 a kg) in just a week’s time on account of lower estimate of sugar output in the country, especially in UP (Uttar Pradesh) — a major centre for sugar production — and due to the slower pace of imports.
If the rise in sugar price continues unabated, then it may wipe off the positive effect of easing of prices of other food articles. But the impact of high sugar prices may not be visible in the forthcoming WPI numbers as it will be for the month of December when food prices had softened marginally. But the inflation figure for January will be relatively high capturing the impact of higher sugar prices.
Sugar prices may continue to rule firm on account of widening of the demand supply gap and higher import costs with global prices also surging. Given this possibility, the prospect of reining in inflation in the coming months purely on account of market forces appears to be slim.
Source : http://economictimes.indiatimes.com/Stocks-in-News/Tough-task-to-keep-prices-under-check/articleshow/5418899.cms
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