Inflation hits a 7 year high

Inflation hits 7-year peak

The Government's worst fear of a double-digit inflation may soon come true, as inflation has climbed to its highest level in seven years and may jump to a double-digit mark on the back of the recent hike in fuel prices. Inflation, based on the wholesale price index (WPI), rose to 8.75% in the week ended May 31 from 7.24% in the previous week, the Commerce & Industry Ministry said. The reading is much higher than average forecast of 8.25-8.35%. Inflation is now at the highest level since February 10, 2001 when it was 8.77. The annual inflation rate was 5.09% during the corresponding week of the previous year. Inflation rate for the week through April 5 has been revised to 7.71% from a provisional figure of 7.14%.

The WPI for All Commodities in the last week of May rose by 0.6% to 231.1 from 229.8 in the previous week. The index for Primary Articles rose by 0.9% to 243.4 from 241.3. The index for Manufactured Products gained 0.7% to 201.0. The index for 'Non-Food Articles' group rose by 1.9% to 235.8 while that for 'Food Products' group rose by 1% to 206.8. The index for 'Textiles' rose by 3.9% to 134.4 while the index for 'Paper & Paper Products' rose by 1.2% to 199.4 and the index for 'Leather & Leather Products' rose by 1.3% to 166.5.

The index for Fuel & Power remained unchanged at its previous week's level of 347.2. However, in the next week's data this index is likely to witness a big jump as it will reflect the hike in fuel prices announced on June 4. While the fuel price hike will have a direct impact of 65 basis points, the indirect impact is expected to be much higher. What's more the indirect impact will also get factored in gradually over the next few weeks as companies pass on the higher energy costs to consumers. And, given the fact that inflation is getting revised every week, we will soon see a day when the figure touches double-digits.

FM wants direct tax estimates revised up

Finance Minister P. Chidambaram asked the Income Tax department to aim for higher direct tax collections in the current fiscal year than the Rs3.65 trillion estimated in the budget for 2008-09. "Given that the actual collection during 2007-08 stood at Rs3.14 trillion, I have asked the Central Board of Direct Taxes (CBDT) to quickly revise upwards the budget estimate," Chidambaram said after the annual conference of chief commissioners of income tax. "The estimate will no longer be Rs3.65 trillion. The CBDT will meet over the next couple of days and increase the estimate upwards," he said. The Finance Minister said that even if a 25% growth is estimated over last year's figure, the budget estimate must be revised upwards sharply. 25% growth over the last year's collection will push the estimate to over Rs3.92 trillion.