The government’s inflation worries do not seem to abate. Rising food prices pushed up headline inflation sharply to 8.43% in December from 7.48% in November, triggering expectations of another increase in policy rates by the Reserve Bank of India (RBI) at its monetary policy review on January 25.
Inflation rate for October too was revised upwards to 9.12% from 8.58%, indicating that prices have indeed been rising much faster than many analysts thought.
?The current level of food inflation in India is not acceptable,? finance minister Pranab Mukherjee said on Friday, while his chief economic advisor Kaushik Basu said he saw January inflation to be lower that in December.
Caught in a cleft stick over the need to spur growth and control soaring prices, the government on Thursday announced export curbs on edible oils, pulses and non-basmati rice but refrained from taking measures that could have greater effect on the ground like banning export of wheat products and futures in some commodities.
Top policy advisers and ministers had earlier predicted that the wholesale price index- (WPI) based inflation would fall to around 6% in December, although they recently revised their forecasts, given the renewed spurt in food inflation and rise in global crude and metal prices.
Inflation has been shooting up due to domestic supply-side bottlenecks that pushed up food prices and rising global commodity prices. Food inflation in December accelerated to 13.55% from 9.41% in November, while manufacturing inflation cooled to 4.46% from 4.56%. Fuel inflation rose to 11.19% in December from 10.3% in November, forcing government to defer a hike in diesel prices last month.
Chief statistician of India TCA Anant said in addition to monetary measures, the government also ought to augment food supply to control price rise.
Stock and bond markets ended significantly lower on Friday, as rate-sensitive stocks and government bonds fell. The Sensex nosedived by 322 points to close below the 19,000-mark on Friday. Yield on the most-traded 8.13%, 2022 government bond ended up 4 basis points at 8.19% on Friday.
Mukherjee indicated that RBI would take measures to rein in rising prices. ?Whenever the appropriate adjustment of the crucial rates is called for in the larger interest of the economy, including the price stabilisation, RBI takes appropriate policy in consultation with the government,? he said. Mukherjee would meet state finance ministers as part of the pre-budget meeting and also discuss ways to arrest food inflation.
Rising prices are forcing central banks across Asia to tighten monetary policies. China on Friday raised banks? cash reserve requirement by 50 basis points to tame rising prices. World stocks extended losses and commodities remained under pressure on Friday after China?s move.
World Bank froup president Robert Zoellick, who is in India on a four-day visit, on Friday said high food inflation in the country was mainly due to the supply-side constraints. He said the key priority for the country is to improve agriculture output and productivity.
?The inflation rate for December has turned out to be much higher than what was originally expected. Given the present situation, perhaps some tightening on the part of the Reserve Bank may be required,? Prime Minister?s Economic Advisory Council chairman C Rangarajan said. RBI raised key policy rates six times last year. But it paused its rate hiking spree in November review.
The central bank is expected to raise key rates by at least 25 basis points to combat inflationary pressures on January 25. This would push up interest rates charged by commercial banks, which have so far raised their deposit rates by up to 100 basis points and lending rates by up to 75 basis points.
Some analysts are also forecasting a steeper rate hike by the RBI but a slump in November industrial output has lessened odds for any aggressive tightening as the RBI is still looking to contain inflation without adversely impacting economic growth.
