Inflation soars to 13-month peak

Even as the Government is taking steps to remove supply side bottlenecks for key consumer and industrial commodities, inflation has raced past the 6% mark to touch the highest level in about 13 months. Inflation, based on the Wholesale Price Index (WPI), shot up to 6.68% in the week ended March 15 from 5.92% in the previous week, the Commerce & Industry Ministry said. The steep jump in the annual point-to-point inflation was largely due to higher prices of electricity, metals and certain fuels and was well above average forecast of 5.96%. It is also the highest since January 27, 2007, when inflation was 6.69%. The annual inflation rate was 6.56% during the corresponding week of the previous year.

The WPI for All-Commodities rose 0.8% to 223.6 in the second week of March from 221.8 in the previous week. The index for Primary Articles was up 0.3% at 230.50 while the index for Fuel & Power climbed 1% to 341.0 and the index for Manufactured Products gained 0.9% at 195.0. Meanwhile, the Government also revised the inflation rate for the week ended January 19, 2008 to 4.45% from a provisional estimate of 3.93%, while the WPI for the same period stood revised at 218.2 compared to 217.1.

From around 4% in the early part of February, inflation has surged to the highest levels in 59 weeks, partly because of the fuel price hike effected in February and partly due to a global rally in a whole host of commodities. The current inflation is way above the tolerable level of 5% set by the Reserve Bank of India (RBI). What is more alarming is that prices are rising even as the economy is slowing. This is surely going to give a headache to policymakers.

Not to long ago, analysts, bankers and India Inc. were clamouring for a reduction in interest rates as inflation was under control. But, in a matter of a few weeks, the scenario has changed considerably with inflation crossing 6%. And, if the price situation doesn't improve much over the next few weeks, the RBI will be in a fix when it frames its annual policy for next year. It may not jack up rates or hike CRR as growth is slowing down and credit offtake is also down. Given the limited options at its disposal, the central bank may allow the rupee to appreciate for tackling imported inflation.