Despite the recent softening in inflation rates, the government is likely to keep a close eye and monitor it regularly in the months to come. The increased concern of the government is primarily because of a likely hike in fuel prices soon, which in turn will lead to higher inflation levels.
International oil prices have risen considerably over the last few months, and a hike in petrol and diesel prices is becoming imminent, a finance ministry official said. The US crude oil price stood 4 cents higher at $ 71.04 a barrel by 0708 GMT on Friday.
?If we keep subsidising fuel prices, despite a global oil price rise, we are likely to run into a deficit,? the official pointed out. In such a situation, the government will have to opt for a hike in fuel prices. ?The consumer will have to pay more,? he said. The finance ministry too is in favour of increasing the prices of petrol and diesel, as stated by finance minister P Chidambaram earlier. However, the final decision will have to be taken by the ministry of petroleum, he had added. Meanwhile, inflation levels continue to remain in the region of 4% in recent weeks mainly due to lower prices of primary products.
Economic think-tank National Council for Applied Economic Research (NCAER) too on Tuesday pointed out in its quarterly report 2007-08 that if oil prices continue to increase, inflation could jump to 5.11% for the current fiscal. NCAER said global oil prices have hardened of late and if the trend holds, the government may be forced to contemplate an upward revision in retail prices to reduce losses suffered by the oil companies. Crude oil price hit $78.36 per barrel on July 4, nearing its lifetime high, fuelling inflationary expectations.
Even though the latest data shows a decline in inflation to 4.05% for the week ended August 4 compared with 4.45% in the previous week, the central bank has cautioned that inflationary expectations still persist, which could push up inflation on the back of hardening oil prices.
This has also been highlighted in the Economic Outlook for the current fiscal by the Prime Minister?s Economic Advisory Council (EAC), released last month. The report pointed out that the inflation rate has been restrained by about 0.35% – 0.60% because prices of petroleum products had not been revised upwards.