03/08/10 Stockholm, Sweden – India’s inflation in food prices has been soaring lately — holding for weeks above 17 percent — due to a combination of factors including the weakest monsoon rains in nearly 40 years, new taxes on gasoline and diesel, and increased excise taxes on a wide variety of products.
From BusinessWeek:
“An index measuring wholesale prices of lentils, rice, vegetables and other food articles compiled by the commerce ministry rose 17.87 percent in the week ended Feb. 20 from a year earlier, following a 17.58 percent gain the previous week, according to a statement in New Delhi today.
“Indian truckers, who carry about 65 percent of the goods in the country, increased transportation rates by as much as 15 percent, the All India Motor Transport Congress said today. The move came after Finance Minister Pranab Mukherjee on Feb. 26 imposed excise tax on gasoline and diesel as part of a plan to start withdrawing fiscal stimulus and cut the budget deficit.
“’The increase in transportation costs is likely to fan inflation in the short term,’ said Sujan Hajra, chief economist at Anand Rathi Financial Services Ltd. in Mumbai. ‘In the coming months, inflation will remain a huge macro-economic issue for policy makers.’”
For now, India will begin selling foods like rice and wheat from emergency reserves to bring down the prices. It’s important that food price inflation eventually returns to lower levels or workers will demand higher salaries which would then increase price level for services and goods throughout the Indian economy.
You read more details about India’s strategies for inflation targeting in BusinessWeek coverage of how India food inflation may be quickening.
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Rocky Vega,
The Daily Reckoning
Rocky Vega
Rocky Vega is publisher of The Daily Reckoning. Previously, he was founding publisher of UrbanTurf and RFID Update, which he operated from Brazil, Chile, and Puerto Rico, and associate publisher of FierceFinance. He specialized in direct marketing at MBI, facilitated MIT Sloan School of Management programs, and has been featured on CBS. Vega graduated with honors from Harvard University, where he was on the board of Let’s Go Publications and directed business programs involving McKinsey, Goldman Sachs, and Harvard Business School faculty. He is also enrolled at the Stockholm School of Economics.
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Solution is very simple. LPG and SKO are needlessly sold at mineral water prices even though sub subsidized LPG/SKO priced fuels being available everywhere in form of induction and solar cooking. Prices of petrol and HSD are about 50% more than in wealthiest country US even though no practical and cheaper substitutes being available. So it is very simple arithmetic and economics to raise LPG and SKO prices and reduce petrol and HSD prices. If we increase LPG cylinder price by Rs. 70 or SKO prices by Rs 5 then petrol and HSD prices can be reduced by Rs 1 per liter. LPG price in Pak are Rs 500 per cylinder more than that in India and same is the case with SKO.