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Skewflation

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Skewflation

Economists usually distinguish between inflation and a relative price increase. ‘Inflation’ refers to a sustained, across-the-board price increase, whereas ‘a relative price increase’ is a reference to an episodic price rise pertaining to one or a small group of commodities. This leaves a third phenomenon, namely one in which there is a price rise of one or a small group of commodities over a sustained period of time, without a traditional designation. ‘Skewflation’ is a relatively new term to describe this third category of price rise.

In India, food prices rose steadily during the last months of 2009 and the early months of 2010, even though the prices of non-food items continued to be relatively stable. As this somewhat unusual phenomenon stubbornly persisted, policymakers conferred on how to bring it to an end. The term ‘skewflation’ made an appearance in internal documents of the Government of India, and then appeared in print in the Economic Survey 2009–10 GoI, MoF.

The skewedness of inflation in India in the early months of 2010 was obvious from the fact that food price inflation crossed the 20 percent mark in multiple months, whereas wholesale price index (WPI) inflation never once crossed 11 percent. It may be pointed out that the skewflation has gradually given way to lower-grade generalized inflation (with the economy in the middle of 2011 inflating at around 9 percent with food and nonfood price increases roughly at the same level).

Given that other nations have faced similar problems, the use of this term picked up quickly, with the Economist magazine (January 24, 2011), in an article entitled ‘Price Rises in China: Inflated Fears’, wondering if China was beginning to suffer from an Indian-style skewflation.

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