Corporates mull hike in prices

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Inflation may touch 10% by end MarchInflation up at 0.83% on higher food pricesHoarding drives food inflation by 16.32%Inflation a matter of concern: FM

: of interference on the pricing front. “This would impact profitability of steel companies because the input prices for steel companies have been increasing. And the differential between global steel prices and domestic prices is not helping the Indian industry.”

While there is no correlation between inflation and growth, India has always been an inflation sensitive country. Inflation in India, which is referred by the wholesale price index (WPI), had remained at around 4% for over six months since September 2007, but started rising in early 2008. For the week ended March 30, 2008, inflation reached a three-year-high of 7.41% and it came down to 7.14% for the week ended April 5, 2008. But it is still substantially above RBI’s target of 5%.

Despite the inflation rate still above the comfort level of the RBI, experts feel that moderate inflation in the economy can fuel growth in some sectors and keep the economy from getting into a stagflation phase. A stage when the economy is not growing but prices are rising rapidly.

An important characteristic of the current spurt in WPI figures is that it is widespread. The price index of manufactured goods jumped by 7.12%, primary articles by 8.89% and power and fuel rose by 6.65%. Primary articles have emerged as the largest driving factor for inflation over the past few weeks. Economists feel that current high inflation figure is still suppressed, as the burden of rising oil prices globally is not yet passed on to consumers in the country. Globally, price of oil has gone up to an all time high of $115 a barrel.

Bimal Jalan, former governor of Reserve Bank of India, says there is no defined range for countries on the correlation between inflation and economic growth. “The current rate of inflation is higher than the RBI’s target and the spike is due to a supply side problem in the country,” he says. In the 1970s India had 8% inflation, but GDP growth was only 3.5%. In the 1980s and 1990s, though GDP growth was 5%, inflation was around 9%. Inflation dipped to 4% couple of years ago while GDP grew to 8%.