Inflation climbs to 8.43% in Dec;rate hike by RBI on the cards

Posted By: Pti
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New Delhi, Jan 14 (PTI) Adding to the woes of thegovernment, the overall inflation in December shot up to 8.43per cent mainly due to rising food prices, a development thatmay prompt the RBI to raise key interest rates later thismonth to check price rise.

Terming the current rate of inflation as "unacceptablyhigh", Finance Minister Pranab Mukherjee today said he woulddiscuss the issue with state finance ministers on January 19to take concerted efforts to moderate prices.

The government had yesterday announced a slew of measuresto tame inflation by deciding to continue ban on exports ofedible oils, pulses and non-basmati rice and asking states towaive local taxes on essential commodities.

"Whenever the appropriate adjustment of the crucial ratesis called for in the larger interest of the economy, includingthe price stabilistion, the RBI takes appropriate policy inconsultation with the government," Mukherjee told reporters.

However, experts doubt the effectiveness of monetarypolicy to tame high food prices as any such action may impactthe growth.

"RBI is expected to raise key short-term rates by 25-50basis points later this month, has no link with foodinflation and is likely to hurt growth," HDFC Chairman DeepakParekh had said yesterday.

World Bank Group Preisdent Robert Zoellick, who is inIndia on a four-day visit, said it (high food inflation) wasmainly due to the supply side constraints.

"My own sense in the case of the Indian economy is thatsome of the inflationary pressures are more likely a functionof some of the bottleneck on the supply side than they arefrom the demand side," he said.

The contribution of food inflation to overall inflationcould be gauged from the fact that ''manufactured'' inflation,in fact, came down to 4.46 per cent in December from 4.56 percent in the previous month.

It could also be assessed from the fact that theseare mainly vegetable prices which have already risen duringthe month.

Vegetable prices rose by 22.90 per cent in Decemberversus the previous month. Within vegetables, onions turnedexpensive by 34.86 per cent and potato by 16.29 per cent.

Other items moved in a narrow range, with the highestprice rise seen in fibres (4.09 per cent) and minerals (3.4per cent).

Food inflation remained high throughout in December andtouched 18.32 per cent before coming down to 16.91 per centfor the week ended January one.

"Food inflation at this level is not acceptable and weare trying our best to control it along with the cooperationof state governments," Mukherjee said.

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