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Price embers set to flicker

New Delhi, June 5: The fuel price hike today is likely to push up the inflation rate to 5 per cent from 4.74 per cent in a few weeks. Government officials said prices have hardened over the last few months with inflation creeping up to 4.74 per cent from 3.5 per cent.

The cost of living, especially in cities, is expected to go up considerably with the sharp rise in petrol prices. Though the increase in case of diesel is modest, the hike in the transport fuel will mean prices of almost all goods will go up.

North Block officials said the government will monitor prices of essential commodities, especially grain, sugar, steel and cement .

“Where needed we may have to step in by releasing grain or sugar or importing them to keep prices low,” they added. The higher tab on diesel will inject a cost push effect to inflation as almost all commodities, including grain, vegetables and fruits are transported by trucks.

“The Rs 2-diesel rate hike will push up the prices of all commodities as the trucks that carry the commodities use diesel as the main fuel,” officials said. Railways, too, will be hit as freight and passenger trains mainly use diesel-run engines.

Analysts said the price hike will impact car sales too, though “incremental automobile sales may now veer in favour of diesel-run cars such as the Indica” Those sitting on the fence waiting to jump from two-wheelers to cars will think twice now in the inflation-charged context.

Economists fear if the current round of oil price push is followed by others and then topped up by a food price hike because of a weak monsoon in parts of the country, things could look bleak for the nation.

Global oil on the boil

World oil prices rose strongly today. New York’s light sweet crude leapt $1.37 to $73.70 per barrel. In London, Brent North Sea crude soared by $1.06 to $72.54 per barrel.

Meanwhile, the rupee extended its last weekend rally against the dollar and closed sharply firm at 45.79 per dollar on heavy demand by oil PSUs after steep rise in world crude oil prices.

in electronic trading, after touching a peak of $72.67.

Global oil prices, which recently hit an all-time high of $73 a barrel on the New York crude futures, are expected to remain upbeat. Analysts believe that till the US manages to ease the West Asian turmoil, prices will rise.

The country’s economic planners are also thinking of raising the interest rate.

Such a possibility has already set alarm bells ringing in the North Block and finance minister P.Chidambaram’s advisers will be using part of India's huge forex reserves to import goods like sugar and wheat whose prices are rising locally.

The country’s economic planners are also thinking of raising the interest rate.

, a traditional weapon to suck out money from the system and reduce demand and thereby cut prices.

Politically, high inflation rates can mean trouble for any government. High prices are unpopular because it eats into people's incomes and in case these are fixed incomes, as in the case of pensioners, these could mean a drastic fall in living standards.

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