The Hindu : Business : Inflation soars to 11-month high

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Friday, Mar 21, 2008
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Inflation soars to 11-month high

Special Correspondent

Food commodities turn more expensive

Chances of RBI going in for interest rate cut recede
Govt. may be forced to take fiscal steps to rein in inflation

NEW DELHI: Inching towards the six per cent mark, a level much beyond the “comfort” zone projected by the Reserve Bank of India (RBI) for the current fiscal, the rate of inflation soared to a 11-month high at 5.92 per cent during the week ended March 8 from 5.11 per cent a week earlier.

With the spurt in metal prices and food commodities turning more expensive in keeping with global cues, the inflation rate as measured by the Wholesale Price Index (WPI) surged by a massive 0.81 percentage point even in the wake of a high base of 6.51 per cent recorded during the like week a year ago.

In such a scenario, the chances of the Reserve Bank of India going in for a cut in interest rates to reverse the sluggish trend in industrial growth appear to have receded further.

It may be recalled that it was just a day ago that Prime Minister’s Economic Advisory Council Chairman C. Rangarajan had pointed out that, as a matter of policy, the upward march of the inflation rate did not favour a reduction in interest rates.

Besides, the prospects of such a policy prescription by the central bank seem all the more remote as Dr. Rangarajan had pegged his view on a much lower inflation of 5.11 per cent, the level at which it was for the week ended March 1.

Clearly, as an immediate relief measure, the Government may be forced to take certain fiscal steps to rein in inflation, as was indicated last week by Finance Minister P. Chidambaram when he said: “We are ready to take any fiscal step to keep inflation under check."

Contributing to the price spiral during the week were the basic metals, alloys and metal products group which rose by 6.7 per cent. In particular, the prices of steel blooms, billets and slabs soared by 30 per cent, wires of all varieties by 25 per cent, steel and tensile plates by 20 per cent and bars and rods by three per cent.

As for food articles, while the prices of pulses such as arhar, gram and moong increased by three per cent, fruits and vegetables, maize, condiments and spices were dearer by one per cent each. Moreover, the prices of manufactured products like imported edible oil rose by four per cent, coconut oil and mustard seed oil by three per cent and groundnut oil by one per cent.

To hold the price line, the Government has banned the export of all edible oils with effect from March 17 for a one-year period.

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