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Inflation at 11.80%, poses formidable challenge to authorities

By Staff
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Google Oneindia News

New Delhi, Oct 10 (UNI) The headline inflation rate for the week ended September 27 moved down to 11.80 per cent as against 11.99 per cent from the previous week, posing a difficult riddle for the monetary authorities of easing liquidity or bringing down inflation.

The inflation rate continues to hover around 12 per cent for several weeks now as authorities combat the challenge of meeting liquidity crunch resulting from the deepening global financial crisis, even as industrial output at 1.8 per cent for August 2008 raised fears of an impending industrial recession.

The options now before the monetary authorities is akin to the metaphorical choice between the devil and the deep blue sea, lowering interest rates at the same time controlling inflation.

The WPI figures released by the Ministry of Commerce and Industry showed that the index for the major group 'Primary Articles' declined by 0.2 per cent, for the second major group 'Manufactured Products' declined by 0.1 per cent, while remaining unchanged for 'Fuel, Power, Light, Power and Lubricants'.

The Finance Ministry in a statement on inflation said the inflation rate in the same period in the previous year at 3.36 per cent was significantly lower. Thus, the low base year effect continues to produce figures of high inflation rate.

In the case of 'manufactured products', rate of inflation in the current week declined to 10.33 per cent, as compared to 10.55 per cent in previous week. Out of 318 commodities, a large number, 295 in all, have shown no increase in prices over the last week.

The Finance Ministry statement said annual rate of inflation is a cumulative impact of changes in prices over 52 weeks. Since consumption is spread over time, average inflation over 52 weeks is often a better measure of the impact of price changes.

Average 52-week inflation for the three broad groups of commodities indicates that while overall inflation is higher in the current year, inflation for primary articles is lower compared to the rates in 2007-08.

A round of interest rate cut worldwide, fears of global recession and symptoms that the Indian economy was showing signs of fatigue, pose a formidable challenge before the Central Bank left with no option but to do tightrope walking-- whether primacy is to be given to putting down the fires of inflation or lighting the fires of growth.

The Indian authorities have reiterated time and again that they were vigilant and agile to the evolving situation of the world getting into the grip of a bear hug of the global stock markets, the credit needs of various sectors and the need to keep up the image that India continues to be the world's second fastest growing economy.

Which way the wheel will turn, is in the realm of future, to which economic theory has little to offer. It is a field where astrologers and soothesayers excel. A desparate world may be left with no option but to turn to them, whatever be their credibility.

UNI SG/GS AK HT1824

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