New Delhi, May 16: Inflation marched to a near-four-year high of 7.83 per cent for the week ended May 3, frustrating the government which has unleashed a volley of fiscal and monetary measures to rein in prices.
In the previous week, the rate of inflation was 7.61 per cent, while it was 5.74 per cent a year ago.
However, prices of cement, iron and steel fell, giving some respite to the government. These items have been among the major contributors to the recent surge in inflation. Iron and steel prices declined 1.7 per cent, while cement fell 0.4 per cent.
Finance minister P. Chidambaram today blamed the spurt in inflation to the high prices of manufacturing items, power and fuel and lubricants. He said the silver lining was the declining trend in food inflation.
Chidambaram is expecting more from cement and steel. As I said, we are waiting for steel and cement (prices) cuts to come into force but we always reserve the right to take administrative measures if they are not enough. But for the time being we simply have to remain a little patient, he said while speaking to reporters on the sidelines of the Businessworld-Ficci-SEDF corporate social responsibility award function.
According to the finance minister, Unless crude prices decline, I am afraid we are stuck with high fuel inflation.
Sonal Varma, an economist with Lehman Brothers, said she expected the Reserve Bank of India to hike the cash reserve ratio (CRR) — the portion of deposit that banks keep with the central bank — by at least half a percentage point during the year and the government to take more fiscal and trade measures. The RBI has already increased CRR to suck out over Rs 27,000 crore liquidity from the system.
Crisil principal economist D. Joshi said, The inflation would continue to move up in the coming weeks as there was pressure of the depreciating currency and high crude prices. The depreciating rupee is offsetting fiscal measures taken by the government.
The government is in a fix over prioritising between growth and inflation. Amid rising prices, industrial growth has dipped to a mere 3 per cent in March. Besides the hike in CRR, the government has taken many fiscal measures such as a cut in customs duties on products such as edible oil, steel inputs and skimmed milk powder.
Arvind Mahajan, executive director of KPMG, said, The government could wait and watch for a few more weeks before taking more measures. But much of their eyes and ears would be focused on the monsoon, which could bring some respite.