‘Base effect is feeding growth of inflation’

“Headline inflation continues to be a matter of concern…The point to be stressed is that the inflation rate for each group is measured on an annual point-to-point basis.

Hence, it is largely influenced by the trend in the corresponding week of the previous year, which is the base year,” a statement issued by the finance ministry said.

Inflation, which surged to 12.63 per cent as of August 9, should also be seen from the perspective that wholesale price index (WPI) declined from 4.39 per cent to 4.24 per cent in the year-ago period. This trend of a declining WPI continued up to November 24, 2007, the statement said. When asked whether it meant that inflation would moderate by that time, finance ministry sources said it would be so to the extent of the base effect.

The ministry said while high inflation continued to be a matter of concern and efforts were being made to address the problem through monetary steps as well as improving the supply side, the rate of inflation for the 30 essential items stood currently at 6.74 per cent.

The statement also took note of former finance minister Yashwant Sinha’s comment that “monetary measures will not help” in containing inflation. Monetary measures were intended to address the issue of money supply and liquidity. Hence, they would help in moderating aggregate demand, the ministry said.