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State of the Economy: Inflation rises to 3-year peak of 7.33% despite government measures |
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India’s inflation rate accelerated to 7.33 per cent, sustaining pressure on the government and the Reserve Bank of India (RBI) to announce more measures to tame prices of essential commodities that have increased sharply in recent months. With this the annual inflation rate remained at three-year highs leaving the Reserve Bank of India with a dilemma over how to act at a review next week amid signs of slowing growth. The price rise is expected to prompt Reserve Bank of India (RBI) to further tighten money supply in its annual credit policy slated to be announced on April 29.
The inflation rate based on wholesale prices rose from 7.14 per cent in the previous week largely on account of higher prices of food products and key raw materials, especially iron ore and other minerals. The inflation rate has more than doubled since November. It crossed 5 per cent in February, the level near which the RBI wanted to contain it in the fiscal year that ended in March.
On Friday last, the Government revised the mid-February inflation number upwards to 5.66 per cent from 4.89 per cent. The average rate of inflation, according to the official data, worked out to be 4.51 per cent during 2007-08 as compared to 5.42 per cent in the previous fiscal.
In the last week of March, it hit 7.41 per cent, the highest since November 2004.
The latest data for the week ended April 12 came shortly after a delegation of Left parties met Prime Minister Manmohan Singh seeking greater government intervention in price management. Singh said despite an extremely difficult global situation, with global food, commodity and oil prices rising, the government had been able to ensure that the Indian people were among the least affected in the developing world.
RBI has already increased CRR, the mandatory amount that banks keep with the central bank, by 0.5 per cent to check money supply. The hike will come into effect in two tranches on April 26 and May 10.
The annual rate of inflation, which dipped from a 40- month high of 7.41 per cent to 7.14 for week ended April 5, again rose despite a host of measures announced by the government to control prices. The rise was in part fuelled by a jump in minerals prices.
Inflation for the corresponding period last year was at 6.34 per cent. The data is the last before the Reserve Bank of India (RBI) reviews policy on Tuesday and follows a surprise increase of 50 basis points last week in its reserve requirement for banks.
The prices of certain essential commodities like vegetables, cereals, pulses and edible oils, however, softened during the week.
Slew of steps: The Government has taken a flurry of steps in recent weeks to curb inflationary pressures including scrapping import duties on edible oils and banning exports of non-basmati rice.
Finance Minister Palaniappan Chidambaram told parliament on Friday inflation would moderate over time and every measure within the power of the Government had been taken and would be taken to calm inflation.
The increase in the cash reserve ratio (CRR) will be implemented in two phases of 25 basis points each. The first phase takes effect on Saturday and the second on May 10. It will take the ratio of banks' deposits parked with the central bank to 8 per cent.
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