Inflation scorches at 42-month high of 7.57%, but may cool soon
INFLATION rose yet again—to a scorching 7.57% for the week ended April 19—registering a 42-month high. The last time inflation had touched a higher level was in November 2004, when it had reached 7.68%. Inflation, measured as change in the wholesale price index (WPI) from its level in the corresponding week a year ago, was 7.33% in the previous week. However, there are some signs that the rise in the price index is moderating. The rise in the price index each week from its level in the week immediately preceding it (week on week) has moderated from 0.8% in early March to 0.1% in the week ended April 12. It moved up again, to 0.3% for the week ended April 19, the latest week for which data is available. Strong procurement of wheat, to the tune of 154 lakh tonnes, for the government’s buffer stock is likely to dampen inflationary expectations somewhat. This moderation in week-on-week rise in the price index is unlikely to bring down the annual rate of inflation, as the base, the WPI level last year, had remained flat from April through October. This base effect is likely to keep inflation high till November this year. The week-on-week change in the WPI from the level attained for the week ended April 12 was 0.3% against 0.1% in the previous week. While the index for primary articles moved up by 0.3%, the index for fuel and lubricants and manufactured products moved up 0.1% and 0.4% over the week, after remaining static in the previous week. Surprisingly the commodities that saw the rise in price index are the ones where the government took measures to rein in runaway prices include milk (1%), rice (1%) , iron and steel (1.1%). Looking at the change over a year, the price index has moved up for all the categories including primary articles (8.58%) (manufactured goods (7.42%) and fuel, power, light and lubricants group (6.9 %). Reacting to inflation numbers, Finance Minister P Chidambaram provided hope by saying current inflation is likely to be contained. He said food prices will come down sooner than other prices. As a contingency, 154 lakh tonnes of wheat and 250 lakh tonnes of rice have been acquired. But economists feel the fiscal and monetary measures taken by authorities will take some time to show positive impact and expect inflation to hold up above 7% mark at least for next couple of months. “Inflation won’t come down below 7% for next couple of months as prices are not showing signs of cooling off in the international market and thus building inflationary pressure on domestic prices.” Crisil principal economist D K Joshi said However, if prices in international market do not go above the existing level, the slew of fiscal and monetary measures taken by the government and RBI would lead to easing of inflationary pressure in the future and it can come down to 5.5% by the end of the 2008.” said Mr Joshi. The possibility of further stringent administrative measures such as bringing more commodities under the Essential Commodities Act, banning futures trade in some more commodities or clampdown on hoarders among others is not ruled out.