Inflation rises to 8.43%; govt warms up to rate hike

Mukherjee also indicated the central bank may take some steps to combat inflation. “Whenever the appropriate adjustment of the crucial rates is called for in the larger interest of the economy,including price stabilisation,the RBI takes appropriate policy in consultation with the government,” he said.

The government had Thursday announced some measures including a ban on exports of edible oils,pulses and non-basmati rice and asking states to waive local taxes on essential commodities to stem inflation. It also set up a committee under the finance ministry’s chief economic advisor to keep a close watch on prices and make periodic recommendations. Various steps taken by the government have so far not yielded much results and supply-side constraints and rising global commodity prices have only been pushing up the inflation in the country.

Inflation has been mainly due to a rise in food prices is also clear from the fact that manufactured products inflation actually came down to 4.46 per cent in December from 4.56 per cent in the previous month.

World Bank President Robert Zoellick,on a four-day visit to India,said high food inflation in the country is primarily due to supply-side constraints. “My own sense in the case of the Indian economy is that some of the inflationary pressures are more likely a function of some of the bottlenecks on the supply side than they are from the demand side,” he said.

Echoing Zoellick’s thoughts,TCA Anant,secretary,Ministry of Statistics and Programme Implementation said,“The rise in headline inflation at present is mainly because of high food prices. While food inflation has not yet slipped into non-food items,it has to be closely monitored. The current increase in food price inflation is largely due to rise in prices of horticulture and milk products. These have very small production cycles and they should get rectified soon.”

Vegetable prices rose by 22.90 per cent in December as against November while onion prices rose by 34.86 per cent and potato by 16.29 per cent during the period. However,other items like fibres,minerals and edible oil moved in a narrow range. Earlier,the government had predicted that the wholesale price index-based inflation will fall to around 6 per cent in December. It has,however,now raised its estimated to 6.5 per cent.

Central banks across Asia are keeping a close watch on rising prices. China on Friday raised banks’ cash reserve requirement by 50 basis points to tame rising prices. The RBI is also expected to raise key rates by at least 25 basis points to rein in inflation in its January 25 policy review.

However,a few experts said that a steep rate hike may not happen given a slow down in industrial growth and RBI itself looking to tame inflation without hurting economic growth. The RBI has projected an inflation of 5.5 per cent by March-end.