Inflation based on the Wholesale Price Index (WPI) has risen sharply to a two-year high of 6.12% in the week ending January 6 — a rate higher than the 5-5.5% inflation rate that the RBI has indicated as acceptable.
There was a sharp rise in the prices of primary products by 9.3% compared to prices in the corresponding week last year. This spiked the overall index despite moderation in fuel prices which rose merely 3.6% year-on-year.
Since oil prices are based on global factors and commodity prices of primary articles get affected by short term factors and are often highly volatile, many countries look at “core inflation.” Core inflation basically means excluding the prices of these two highly volatile components from the inflation figures.
Even if that’s done, inflation based on prices of manufactured goods, a measure of core inflation, rose by 5.9%.
Finance Minister P. Chidambaram said the inflation numbers are a matter of concern and the Government would take steps. “Inflation is a monetary phenomenon and is also being driven by supply-side constraints,” he said. “The Ministry of Finance is in touch with the Reserve Bank of India and Agriculture Ministry, and we will do whatever is needed.”
Former RBI Governor and chief economic advisor to the Prime Minister C Rangarajan said, “The trend was in the direction of inflation accelerating. If inflation rises beyond 5.5%, it’s a matter of concern and can cause problems in the exchange rate.”
Concerns have been expressed that the Indian economy, with its high growth rate and rising inflation rate, high real-estate prices and rising salaries, is overheating. Ratings agency Moody’s said as much this week adding that capacity constraints could prevent annual growth of 9% from being sustained.
... contd.
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