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Biofuels lift food prices 75 percent
Demand for biofuels in Europe and the United States has forced up food prices 75 percent around the world, according
to a World Bank report that was leaked and published in The Guardian newspaper
on July 04, 2008.
The number stands in sharp contrast to the 3 percent contribution to higher food
pricing estimated by the United States Department of Agriculture. Meanwhile, a study
commissioned by food manufacturers pegs the contribution of biofuels on food prices at between 25 percent and 35 percent.
The World Bank argues that these policies have distorted the market for grains
in three ways, according to The Guardian. First, crops that would have been sold
for food have been diverted for biofuels production. Second, land is now being
used for fuels rather than food. And third, the mandates have set off
speculation in financial markets. "Without the increase in biofuels, global wheat and maize stocks would not have
declined appreciably and price increases due to other factors would have been
moderate," The Guardian quoted the report as saying.
The World Bank earlier this year issued a warning on biofuels and blamed them,
in part, for food crises in developing countries. The Guardian said that the
food impact report was delayed for political reasons, specifically not to
discredit the Bush Administration's strong support for biofuels, particularly
corn-based ethanol.
How Inflation is calculated in India
India uses the
Wholesale Price Index (WPI) to calculate and then decide the rate of
inflation in the economy. Most developed countries use the Consumer
Price Index (CPI) to calculate inflation. WPI was first
published in 1902, and was one of the major economic indicators
available to policy makers until it was replaced by the Consumer
Price Index in most developed countries by in the 1970s.
WPI is the index that is used to measure the change in the
average price level of goods traded in wholesale market. In India,
price data for 435 commodities is tracked through WPI which is an
indicator of movement in prices of commodities in all trades and
transactions.
It is also the price index which
is available on a weekly basis with the shortest possible time lag
-- two weeks. The Indian government has taken WPI as an
indicator of the rate of inflation in the economy.
CPI is a statistical time-series
measure of a weighted average of prices of a specified set of goods
and services purchased by consumers. It is a price index that tracks
the prices of a specified basket of consumer goods and services,
providing a measure of inflation.
CPI is a fixed quantity price index and considered by
some a cost of living index. Under CPI, an index is scaled so that
it is equal to 100 at a chosen point in time, so that all other
values of the index are a percentage relative to this one.
Some economists argue that it is high time that India
abandoned WPI and adopted CPI to calculate inflation. India is
the only major country that uses a wholesale index to measure
inflation. Most countries use the CPI as a measure of inflation, as
this actually measures the increase in price that a consumer will
ultimately have to pay for.
CPI is the official barometer of inflation in many
countries such as the United States, the United Kingdom, Japan,
France, Canada, Singapore and China. The governments there review
the commodity basket of CPI every 4-5 years to factor in changes in
consumption pattern. WPI does not properly measure the exact price
rise an end-consumer will experience because, as the same suggests,
it is at the wholesale level.
The main problem with WPI calculation is that more than
100 out of the 435 commodities included in the Index have ceased to
be important from the consumption point of view. India constituted
the last WPI series of commodities in 1993-94; but has not updated
it till now that economists argue the Index has lost relevance and
can not be the barometer to calculate inflation.
Source: Rediff.com
Inflation zooms to 13-year high of 11.05%
NEW DELHI, June 20, 2008: Inflation on Friday shot up to
a 13-year high of 11.05 per cent fuelled by rise in prices of petrol,
diesel and cooking gas, giving no relief to the government from the
spiralling prices in an election year. The rise in petrol, diesel and
cooking gas prices announced by the government on June 4 put the
pressure on price line pushing the inflation by week ending June 7, up
from 8.75 per cent in the preceding week.
Within minutes of the release of the government data,
sensitive BSE index of stock markets tanked about 350 points,
reflecting the nervousness of the investors about the efficacy
of the measures being taken by the Finance Ministry and the
Reserve Bank of India. Besides fuel prices, rise in prices of
food products particularly edible oil and manufactured goods
added to the pressure on price line and woes of the government. Previous
high inflation of 11.11 per cent was witnessed on May 6, 1995.
Leading economists and analysts predicted that price
pressures would prompt the Reserve Bank of India to further
tighten the monetary policy, possibly by making short term
lending to banks costlier. This could further lead to increase in
interest rates for cars, homes and consumer finance, economists
said and feared that present situation could also force a hike in
lending rates for the industry and many banks are already
contemplating hiking the prime lending rate.
In his first comments after the inflation numbers reached
a 13-year high of 11.05%, Finance Minister P Chidambaram said petro
products were hugely responsible for the sharp rise in prices.
He added that crude prices are up 37 per cent since the
Budget was presented this year. He said that the double-digit
inflation numbers were expected and he had warned the Cabinet fuel
price hike would push inflation. Finance Minister Palaniappan
Chidambaram admitted it was "a difficult time", and
said the government would look at introducing measures to tackle
the problems.
Unlike most countries, India calculates inflation on the
wholesale price of a basket of 435 commodities, which means actual
prices paid by the consumer are much higher.With the central bank
expected to increase interest rates to try to control inflation,
India's economic growth is expected to slow down. Last week, India's
central bank raised short-term borrowing rates from 7.75% to
8%.
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