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Inflation Holds At Three-Year Peak
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Inflation rose to 7.33 per cent for the week ended April 12, bringing pressure on the government to do more to rein in prices and the Reserve Bank to further tighten money supply.
Hopes from the previous week's data of prices easing turned out to be a fleeting relief for the Congress-led UPA government, which is drawing flak from the opposition as also allies for its handling of the price situation.
In fact, leaders of Left parties, who prop up the UPA from the outside, met Prime Minister Manmohan Singh today and asked him to take urgent steps to control soaring prices.
Inflation rose despite high base of 6.34 per cent in the year ago period as global commodity prices continued to rise. It stood at 7.14 per cent in the previous week.
Among all important food items, prices of jaggery (gur) surged by 12 per cent, followed by fish marine, sooji, oil cakes, maida, khandsari and coconut oil. However, vegetables, turned cheaper, so did imported edible oil, on which the Centre cut duties on March 31.
"If you see the rate of increase in inflation, you find fiscal measures taken by the government are paying off. This is direct fiscal impact, but clearly the bottomline is fiscal measures have not been adequate," said HDFC Bank Chief Economist Abheek Barua.
Besides fiscal measures, RBI might also further tighten money supply in its annual policy scheduled for Tuesday. It has already announced 0.50 per cent hike in madatory cash deposits of banks, which would suck out Rs 18,500 crore from the system.
Commerce and Industry Minister Kamal Nath said in Dubai on April 24 that inflation would ease to below 5 per cent within two months, as a result of steps already taken by the government and RBI.
"I expect monetary tightening by RBI. Repo rate might be hiked by 25 basis points and credit control measures to curb hoarding of commodities might also be announced," Barua said. Among food items, various pulses like gram, arhar and masur as well as pork, condiments, spices and barley also turned less expensive.
In manufactured items category, certain tobacco products like bidi became costlier, as also some chemical products like carbon black, non-metallic minerals like railway sleepers, and machine tools such as enameled copper wires, complete tractors and ari and gas compressors.
Among fuels, prices of bitumen and lubricants went up marginally.
Even though inflation started crossing five per cent mark in the latter part of February last fiscal and stood at more than seven per cent towards close of the year, average inflation was quite low at 4.51 per cent against 5.42 per cent in 2006-07.
Pointing out that international commodity prices are not coming down, Barua said, "I don't see a dramatic increase in inflation, but it may be around seven per cent mark." The soaring prices have become a political scoring point as some assemblies are scheduled to go for polls this year with Karnataka slated for next month.
On April 24, NDA leaders protested against price rise and today Left party leaders met the Prime Minister on the issue.
That soaring prices are raising sensitive political barometer was also clear from the Prime Minister's appeal to political parties to eschew the temptation of politicising the misery of the people. He also warned against creating an environment of scarcity that would encourage speculators and hoarders.