Prices have rarely been at the centrestage of a political controversy, but these turned out to be so for the BJP-led government in 1998 when soaring prices of essential commodities cost them three state elections.

Despite prices of onions becoming an election issue in the latter part of the year, inflation based on wholesale price index (WPI) managed to stay well below the double digit mark throughout the year due to a slump in demand in the economy.

However, the inflation based on the lesser used consumer price index for industrial workers (CPI-IW) shot up to an all time high of 18.6 per cent in October.

The second highest ever inflation rate on CPI was also recorded during this year in September at 16.3 percent. The previous highest was 16.1 per cent in January 1991.

Inflation had risen during September-October as agricultural production wavered initially due to extreme heat wave in northern India and later excessive rains in the post-monsoon period.

The slowdown in the economy came as a face saver to the government, which was facing the flak on the vegetable price rise issue, as prices of manufactured items remained more or less static due to a slump in demand suppressing overall inflation during the year.

During the year so far (upto December 12) prices of primary articles rose by 11.5 per cent compared to just 3.5 per cent rise in manufactured products.

The administered prices also remained under tight leash during the year, as prices of fuel, power, light and lubricants, which are mostly the commodities whose prices are controlled, rose during the year by a paltry 1.2 per cent.

Despite depressed prices of manufactured products during the year, WPI inflation rose to a three-year high of 8.85 percent in the first week of November on sustained increase in prices of vegetables and edible oils.

Prices of agricultural commodities, however, showed some signs of relenting towards the last two months of the year, relieving the pressure on inflation.

Inflation came down by about 1.85 percentage points in the last six weeks of the year as the increase in prices of agricultural products, especially vegetables started easing. During the period, prices of vegetables fell from 139.6 per cent to 81.4 per cent.

Inflation was ruling at 7.01 per cent (December 12) towards the end of the year compared to 5.63 per cent at the beginning of the year.

After starting on a subdued note at 4.2 per cent in the first quarter, inflation slowly picked up to 6.7 per cent in the second quarter. It steadily rose to 8.4 per cent in the third quarter before easing to 8.2 per cent in Oct-Nov.

An interesting pattern that emerged during the year was the divergent trends in inflation based on WPI and CPI. Though CPI, based onretail prices, is expected to follow the wholesale prices after a lag, during the current year it mostly chartered its own course.

This could be more because of the difference in weightages given to different commodities in both the indices. So the effect of price rise in vegetables tended to be more pronounced in CPI inflation than WPI, where vegetables have a much lower weightage than in CPI.

The efforts to restructure the existing WPI to make it more reflective got entangled in the fallouts of the swift political changes at the centre.

The restructuring, which is already running behind schedule, was put on the backburner as the committee chairman SR Hashim, who is also the member secretary of planning cmmission, got bogged down in the more important task of finalising the Ninth Plan document, which itself is almost two years behind schedule.

During the year, items like onions and potatoes saw the prices going up by more than 300 per cent. The prices of these items were more or less reined infollowing desperate measures by the government in Oct-Nov.

During the year, prices of food grains grew by 9.5 per cent, cereals by 9.2 per cent, pulses by 11.2 per cent, oilseeds by 20.2 per cent and edible oils by 16.9 per cent.

The rise in primary articles was mainly on account of a fall in both rabi and kharif crops during the year. The total foodgrains production fell to 194.09 million tonnes from 199.32 million tonnes the year before.

One factor that could have fuelled the inflation was the fact that broad money (M3) had increased unrestricted during the year. As against a projected growth band of 15-15.5 per cent during the fiscal, money supply growth had run away to 20 per cent in august.

The growth in money supply, which has substantially come down since august, was mainly due to the inflow of 4.16 billion dollars from resurgent India bonds (RIBs).

The rise in money supply has put Reserve Bank in an awkward situation - any tightening of money supply would affect even the little chance ofreviving the economy. On the other hand, an expanding money supply could throw the inflation out of control.

Going by the trend in the last six weeks, it looks likely that the government may be able to contain inflation during 1998-99 within the targeted 7-8 per cent.