NEW DELHI (Commodity Online) : India’s inflation measured in terms of the wholesale price index (WPI) on a year-on-year basis, eased sharply from its peak of 12.8 per cent in August 2008 to 1.2 per cent in March 2009.

Average annual inflation (April- December) stood at 1.6 per cent in 2009-10 compared to 10.2 per cent in 2008-09.

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The current financial year (2009-10) started with an inflation rate of 1.3 per cent in April 2009 and remained in negative territory from June to August 2009.

In the month of December 2009, the year-on-year inflation was 7.3 per cent as against 6.1 per cent last year in the corresponding month.

In December 2009, nearly 67 per cent of the overall WPI inflation could be attributed to food items (primary and manufactured), followed by 12 per cent in the fuel and power commodity group, the remaining 21 per cent being explained by manufactured non-food and primary non-food articles.

Among food items the major contributors to inflation are milk (20 per cent), eggs, meat and fish (over 20 per cent), rice (about 10 per cent), wheat (6 per cent), pulses (about 9 per cent), potatoes (9 percent) and tomatoes (6 per cent).

Inflation based on the consumer price index (CPI) for industrial workers showed an increase to 15 percent on a year-on-year basis in December 2009 from 9.7 per cent a year ago.

The recent period has witnessed significant divergence in the WPI and CPI inflation rates, principally on account of the larger weights assigned to the food basket in the CPIs and due to the fact that retail prices are relatively sticky downwards.

Thus, due to the sharp increase in essential commodity prices, all the four CPIs remained elevated since March 2008, rising gradually from about 7 to 8 per cent (month-on-month) to around 15 to 17 per cent in December 2009.

A significant part of this inflation can be explained by supply-side bottlenecks in some of the essential commodities, precipitated by the delayed and sub-normal South West monsoon as well as drought-like conditions in some parts of the country.

The delayed and erratic monsoon may have also prevented the seasonal decline in prices, normally seen during the period from October to March for most food articles other than wheat.

Since December 2009, there have been signs of these high food prices, together with the gradual hardening of non-administered fuel product prices, getting transmitted to other non-food items, thus creating concerns about higher-than-anticipated generalized inflation over the next few months.

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