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Journalism of Courage
Surging ahead for the fifth consecutive week, the annual rate of inflation went up to 5.89 per cent during the week ending June 12. It will go up further in the next week after factoring increase in fuel prices which were announced by the government on June 15, feel experts.
Inflation rose mainly due to rise in prices of fruits and vegetables, tea, eggs, minerals and manufactured products.
Notwithstanding the United Progressive Alliance (UPA) government’s promise to keep the prices of essential commodities down, the inflation based on wholesale price index (WPI) surged by 0.34 per cent from 5.55 per cent in the previous week and 4.97 a year ago.
The wholesale price index was up by 0.4 per cent to 183.4 points from 173.2 a year ago, mainly due to rise in prices of primary articles by 0.2 per cent and manufactured products by 0.6 per cent although fuel prices remained static.
Commenting on rising prices, chief economic advisor (CEA) Ashok Lahiri said, “The government is fully committed to price stability. Hardening of inflation was due to seasonal fluctuations and I don’t think it will remain high. There will be a downward movement in coming months.”
Even in January, inflation went up to as high as 6 per cent, yet it came down later, he said. Lahiri also ruled out any impact of global inflation on domestic prices.
However, Indian Council for Research on International Economic Relations (ICRIER) Director Arvind Virmani said, “The increase in inflation is primarily due to the rise in prices in the domestic market, which in turn is a fallout of the global price hike.” B.B. Bhattacharya of the Institute of Economic Growth (IEG) also opined that though the increase in inflation rate is not alarming, the government should take steps to control the increase.
Investment banker, JP Morgan said inflation is likely to touch around 6.5 per cent before the end of July, with next week’s data reflecting the recent hike in domestic fuel prices.
Bond market choppy
• Inflation tremors have reached the money market. Bonds tumbled to levels not seen since May 2003, as the inflation rate jumped to a higher-than-expected 5.89% for the week ended June 12.
The yield on the benchmark 10-year bond was at 5.8641%, 10 basis points higher than just before the release of the inflation data. It last traded near these levels when it closed at 5.8648% on May 17, 2003. The 10-year bond has risen nearly 40 basis points this week, in anticipation of a rise in interest rates in near future.The 2014 stock plunged to a low of Rs 110.83, before ending at Rs 111.10/20, still sharply lower from Thursday’s close of Rs 111.75/85.
The rupee, however, rallied afresh against the US currency on Friday backed by dollar sales by exporters, unwinding of long dollar positions by banks and intervention by the RBI. In erratic two-way trade the rupee closed at 45.84/85 per dollar, a four paise recovery from Thursday’s finish of 45.88/90.
