Fuel prices to hit inflation in the near term, says Pranab

Written by fe Bureaus | Mumbai | Updated: Jun 30 2010, 05:29am hrs
Finance minister Pranab Mukherjee on Monday said inflationary pressure would start moderating in mid-July and it would finally be moderated by the end of the year. Mukherjee said the recent fuel prices will have a direct impact on inflation by 0.9% in the short-term. Still, there would be some cascading impact on food inflation and primary articles inflation too.

Mukhrejee was talking to reporters after interacting with the heads of state-owned banks and chief ministers of Western and Central states of the country. The finance minister will also be holding similar interactions with bankers in Chandigarh and Hyderabad next month.

Mukherjee hoped that in the long run, inflationary pressures will get absorbed, as it will pass through high volumes of transactions. Responding to a question on whether RBI will increase its policy rates to tackle inflation inflation, Mukherjee said, It is the prerogative of the central bank, which will take into account all such factors when it reviews its policy next month.

Defending the governments decision to increase prices of petro products, he said that this will bridge the under recoveries of oil marketing companies. He also said the duties hiked on petro products in the Budget would help him bridge the fiscal deficit. The import duty and Re 1 per litre excise duty imposed at the time of the Budget has helped me a little to bridge the fiscal deficit, he said.

Mukherjee said there will not be any impact on fiscal deficit due to the rise in fuel prices, as the additional money does not go to the consolidated fund of India, but the oil marketing firms.