Inflation resurges, close to 12%

After showing the silver line last week, inflation once again marched to the psychological mark of 12 percent. Last week, inflation had slipped down marginally from 11.91% for the week ended for June 05 to 11.89% for the week ended for June 12. That decline had raised some anticipation that Inflation might likely to come down, but the new Wholesale Price Index (WPI) data have once again disappointed the government and the public.

According to the latest report of WPI, inflation has surged at 11.98% very close to 12% for the week ended for July 19, a rise of 0.9% compared to last week’s data. Last year it was at 4.65% for the same week, as per the report of Department of Economic Affairs, Ministry of Finance.

This week inflation escalated due to increasing prices of some food and manufactured items including moong (4%), urad (3%), arhar (2%), condiments & spice and gram by one percent each, linseed (2%) raw rubber (1%), oilcakes (2%), sugar and khandsari (1% each), cotton yarn-cones (3%), cotton yarn-hanks (2%), other iron steel (4%), lead ingots (2%), power driven pumps (4%) and other electrical equipment & systems and boilers, its parts & accessories (1% each).

However, Union Finance Minister P Chidambaram in his speech said, “Inflation, on a week-on-week basis, has continued to remain stable.” But, he also accepted that the annual inflation rate for the group of 30 essential commodities went up from 5.82 reported for the week of July 12, to 6.67 reported now. “It has remained in the range of 5.7 to 6.7 per cent in the 16 weeks of the current fiscal year,” Chidambaram said.

“In the ‘primary articles’ group, out of a total of 98 articles, 15 articles have shown a decline in prices as compared to July 12, 2008, while another 58 articles have shown no increase in prices.” he added.

“Prices of all the 19 articles in commodity group ‘fuel and power’ have shown no increase, while in ‘manufactured products’, out of a total 318 commodities, a large number, 288 in all, have shown no increase in prices over the last week.” FM further said.

“Only 20 products, particularly basic and foundry pig iron, sugar and khandsari, cotton yarn- hanks and cones, lead ingots, groundnut and deoiled cake witnessed an increase in prices while all 10 commodities showed a declination including rice bran oil, groundnut oil, imported edible oil, hessian bags and cloth and nylon filament and synthetic yarn.” stated Finance Minister Chidambaram.

This week the final wholesale price index for 'All Commodities’ calculated on point to point basis, stood at 8.90 percent as compared to 8.24 percent for the week reported on June 06, 2008, as per WPI report.

The index for ‘Food Article’ group rose by 0.1% and ‘Non-Food’ Article group by 0.1%, which cumulative elevated the index for ‘Primary Article’ group by 0.1%.

In the ‘Manufactured Product’ group, the major group index rose by 0.2% on the back of rising the index of ‘Food Products’ group by 0.6 percent, ‘Textiles’ group by 0.9 percent ‘Paper & Paper Products’ group by 0.2 and ‘Machinery & Machine Tools’ group by 0.1 percent.

The market experts believe that inflation can cross the level of 13 % mark and can reaches to 13.5% by the end of August and then it can begin to slow down. It also very much depends on prices of steel, which is likely to increase soon as the steel makers had announced few days ago.

But, Union Steel, Fertilizer and Chemical Minister Ram Vilas Paswan on Thursday re-appealed to steel makers not to hike the prices. If, it goes high, the inflation may cross the barrier of 15% by the end of this year, as market experts believe.

For taming inflation and tightening the liquidity from the market, YV Reddy, the governor of Reserve bank of India had increased the Cash Reserve Ratio (CRR) by 25 basis point (bps) and repo rate by 50 bps. These increments have shown the quick impact as top private banks like ICICI and HDFC have raised the home loan interest twice in a month. Both the banks have hiked the Prime Lending Rate- the rate on which home loan is disbursed- by 75bps (.075%) on Thursday.