Inflation at 4.35%, food items costlier

This, of course, is 200 basis points lower than the position prior to Budget 2007-08. Under pressure from allies, the government banned forward trading in wheat and rice and tweaked excise duty structure of cement to stem the price rise. Then, too, the rise was mainly on account of high food prices.

Latest data shows consumer price inflation has dropped from 7. 5 per cent to 5.5 per cent, still higher than primary price inflation. However, primary prices are rising again, and according to an Axis Bank study, CPI inflation is unlikely to come below 5 per cent in the near future. “The rise in the NCDEX Agri Spot index suggests that primary price levels will keep rising for some time, but we also think there will be some moderation around the time of the winter harvests.”

Last month, at the World Economic Forum in Davos, Chidambaram had said that keeping inflation rate low, not high growth, was a priority for the government. “Between inflation and growth, what hurts the poor most is the inflation. That is why we must keep inflation low and this means reasonably high rate of growth.”

Economists feel inflation is unlikely to cool down. “With fuel price hike showing up in headline numbers from next week, inflation seems to be on an up trend and may reach the 5 per cent mark very soon,” said A Prasanna, economist, ICICI Securities.

The growth rate of the economy has slightly eased to 8.7 per cent in 2007-08, almost a percentage point lower than the 9.6 per cent rate achieved in the previous fiscal, according to Central Statistical Office’s advance estimate of GDP. The government has also hiked petrol and diesel prices by Rs 2 and Re 1 per litre, respectively on February 14.

However, the latest inflation data does not capture the rise in fuel prices, which could push inflation up by another 20 basis points including the cascading effect of rise in transport costs.