Inflation remained below 6 per cent in the last two years and recently hovered in the range of 5 to 5.5 per cent — the tolerance band set by the RBI for this fiscal. But in the beginning of this year, the rate crossed 6 per cent mark, adding 142 basis point in the past eight weeks, from 5.16 per cent in the week ended December 2 to the current level.

The surge is driven mainly by a steady rise in the prices of primary goods like foodstuff. The index for other items like manufacturing in the wholesale price index (WPI) remained unchanged. The government took measures like reducing duty on cement, capital goods, steel, aluminium, copper and other industrial raw material, and even banned trading of items such as urad, but inflation, based on the WPI on January 20, touched 6.11 per cent in the week before January 27.

“It is above everybody’s expectation. It is beyond the tolerance level of the RBI and the finance ministry,” said Rupa Rege Nitsure, economist with the Bank of Baroda. “The money markets and government securities market will have to be prepared for a more stringent monetary environment.”

The yield on 10-year government bonds edged up to 7.84 per cent from 7.83 per cent ahead of the data, while the rupee was steady at 44.05 per US dollar.

The central bank raised its short-term lending rate by 25 basis points to 7.50 per cent on January 31, but left its borrowing rate unchanged. While analysts expect another rate rise at or before the next policy review on April 24, some felt the RBI would be in no rush to tighten policy just yet.

What is alarming for the government is that prices of food articles like vegetables have been on the rise. Greens have risen 0.7 per cent, eggs, meat and fish 1.4 per cent, milk 1.4 per cent, and fruit and oil seeds 1.7 per cent each. But in comparison, the latest wholesale prices of pulses, sugar and processed food marginally came down during the week.

Even the index for fuel, power, light and lubricants, which have a 14.23 per cent weight in the WPI and manufacturing products with a 63.75 per cent weight, remained unchanged.

— With Reuters