Inflation surges to 7.41%, Govt says there’s no magic wand, it’s global

The continuous increase in prices of vegetables, food articles and steel has seen the inflation rate climb to its 40-month high. Inflation, which was 6.54 per cent a year-ago, last touched 7.76 per cent during the week ended November 6, 2004. Growing for the eighth consecutive week, it rose by 0.41 percentage point for the week ended March 29 to 7.41 per cent from 7 per cent in the previous week.

After a series of fiscal measures including duty cuts on edible oils and banning exports of pulses and rice, the focus may now shift to monetary tightening. All eyes are now on the Reserve Bank of India, slated to announce its quarterly review of the monetary policy on April 29. A hike in cash reserve ratio — the funds banks have to keep with the RBI — that will curtail liquidity, seems likely now.

“India is no longer insulated from the world. Food and commodity prices are rising continuously globally,” said India’s chief statistician Pronab Sen. “Since food and manufactured items constitute almost four-fifths of the WPI basket, the inflation rate is bound to increase,” he said.

And, it impacts the salaried class the most. “For the fixed-income class, food accounts for almost 30-40 per cent of the expenditure. And they are the ones most affected,” said Sen. Vegetables prices showed an increase of 4.1 per cent during the week, while spices and pulses became dearer by 1.2 per cent and 1.8 per cent, respectively in the wholesale market.

The price rise in these commodities would be much higher in the retail market going by the traditional difference in WPI and consumer price index (CPI). Prime Minister Manmohan Singh had on Thursday admitted that surging food prices were making it difficult to manage inflation but ruled out any “blind controls”. To make things difficult for the economy, steel, alloys, and other metals led the rising prices in the industrial sector.

While steel prices shot up by 5.6 per cent, basic metals became dearer by about 5 per cent during the week even as the government went into a tizzy to find solutions through a slew of fiscal measures and supply side management Despite the fiscal measures taken by the government to ease inflation, the rate has nearly doubled in less than three months of 2008.

The annual rate of inflation, which stood at 3.79 per cent at the beginning of January according to official data, has gone up by 3.62 per cent, with the highest increase of 2.39 per cent being recorded during the four weeks ended March 29. Although the fiscal measures taken by the government are not reflected in the week under review, the Manila-based Asian Development Bank (ADB) expects these measures to influence prices only by the month-end.