Eighth year of last 3 decades saw a spike in inflation

[N.Sukumar]

NEW DELHI: Numerology may have little to do with macroeconomics, but
the eighth year of every decade appears to bring with it bad news for
the consumer. Over the past three decades, years 1988, 1998, and now
2008, have seen one of the biggest bites on the consumer’s wallet,
with inflation in all these years touching double-digit figures.
Incidentally, 2008 also brings to an end a period of unprecedented low
consumer inflation, which started in 1999.

The updated inflation figures for consumer price indices, CPI(IW),
CPI(AL) and CPI(UNME), representing the index for industrial workers,
agricultural labourers and urban non-manual employees, respectively,
for June are yet to be compiled. However, these indices assign a
higher weightage to food products, and there has been a sharp rise in
the prices of food, especially cereals, milk and milk products,
besides cooking oil.

This is likely to push consumer inflation to the double-digit bracket
exactly after a decade. If this were to happen, it would be in line
with the trend seen since the 80s, where inflation during the eighth
year of every decade figures in the 10%-plus range.

Let’s consider CPI(UNME), which is largely a proxy for inflation faced
by urban white-collared employees. The last time urban India faced
high inflation was in 1998, when the annual average was 11.1%.
Incidentally, CPI(UNME) crossed 10% in June 1998, something which is
expected to happen this year as well. In 1998, seven months reported
double-digit inflation, touching a high of 15.5% in November.

Same is the case with consumer inflation for industrial workers and
agricultural labourers. Inflation for agricultural labourers averaged
13% in 1998, touching a high of 19.6% in November. While inflation for
industrial workers marginally fell short of the double-digit mark,
averaging 9.5% for the year, it also hit a high of 18.3% in November,
with six months reporting 10%-plus inflation.

In 1988, consumer inflation for agricultural labourers and urban India
hovered in the 8-9% range, crossing the 10%-mark in April. However,
consumer inflation for industrial workers was not so modest and
averaged 13.5% for the year, touching 15.5% in April.

Interestingly, high inflation in the eighth year of each decade since
1980s came on the back of an opposite trend in the 1970s, when
consumer inflation was low. For industrial workers, 1978 actually was
a year of deflation when the price index dropped. Inflation for
agricultural labourers and urbanites also averaged a modest 2.5% and
4% in 1978, one of the lowest annual consumer inflation that the
country has witnessed since then.

Moreover, the eighth year did not record the highest inflation in any
decade, including the 1980s and 1990s. However, consumers can hardly
take solace from this, as this could mean there is more pain that
could become apparent in the next couple of years.

N.Sukumar
Research Analyst