New Delhi: Raising fresh hackles for the government in an election year, there was bad news on the economic front for the second day in a row with inflation breaching the 4% mark after nearly five months. Inflation based on wholesale price index (WPI) touched 4.11% for the week ended January 26, from 3.93% in the previous week and 6.69% in the corresponding period last year, as both primary and manufactured goods became costlier.
Had it not been for the status quo on petroleum prices, with the government barring companies from raising petrol, diesel, cooking gas and kerosene rates, the situation would have been worse with inflation estimated to be at least 5%, if not higher. “The government has understated numbers by 1-1.5% by keeping oil prices unchanged,” said an economist.
What’s worse is that the price situation could only get grimmer in the coming days if Central Statistical Organisation’s projection of 2.6% rise in farm production proves correct. Economists said it will put further pressure on food prices as local output will be low, adding to already tight supply woes, while internationally commodity prices are rising.
In addition, oil minister Murli Deora said in Bangalore on Friday that the government now needs to increase retail fuel prices, though moderately, in addition to cutting taxes to lower the burden of record crude costs on state-run firms.
The only silver lining seems to be coming from the industrial sector where investment rate, according to CSO estimates, have jumped further, and is expected to increase demand, ease supply constraints and lower prices.
At present, inflation is within RBI’s comfort zone of under 5% and also within its medium term target of 4-4.5%.
“Inflation is coming back to where it was initially expected to be. We maintain the view that inflation should be between 4.0-4.5% by the end of the financial year,” said Shuchita Mehta, chief India economist at Standard Chartered Bank. “We still remain concerned over high agri-commodity prices as well as local crude oil prices which might keep the central bank on hold for an extended period of time despite weakness on the global economic front.”
On Thursday, CSO said the economy was expected to grow 8.7% this year prompting those like DK Joshi, principal economist at rating agency Crisil, to predict a tougher job for RBI and the government due to the downward pressure on growth, thanks to the scenario in the US, and an upward pressure on prices.
Even the Prime Minister’s Economic Advisory Council had suggested caution on prices due to rising global oil and food prices. For the week ended January 26, Price of salt moved up 5%, while maize, moong and wheat too were more expensive.