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Joint bid to contain inflation

New Delhi, July 14: Finance minister Pranab Mukherjee today said that inflation, which came at 9.44 per cent in June, was a matter of concern and the government and the RBI were working together to contain it. Inflation rose to 9.44 per cent in June from 9.06 per cent in May because of higher prices of fuel and manufacturing items.

Analysts said the price situation could push the RBI to hike key policy rates in its next review meeting on July 26.

“The government is working together with the RBI to take appropriate steps to reduce inflation to more comfortable levels an increase in fuel prices, seasonal effects and an upward movement in the prices of minerals as well as manufactured products are driving inflation,” Mukherjee said. He said inflation figures for June “continue to be a matter of concern” and asserted that the government was “monitoring the price situation closely”.

Inflation, as measured by the wholesale price index (WPI), rose from 9.06 per cent in May. The April numbers too were sharply revised upwards to 9.74 per cent from 8.66 per cent. Headline inflation has been above the 9-per-cent mark since December 2010.

Final readings for most older data are being revised upwards, raising worries that inflation may in fact already have entered the double digits, analysts said.

Chief economic adviser Kaushik Basu said, “If need be, we will live with slightly lower growth in order to have sustained long-run growth inflation needs to be controlled, there are no two ways about that.”

He said inflation was likely to come down to around 6 per cent by March 2012.

The index for the fuel and power segment stood at 12.85 per cent year-on-year in June. This was up from 12.32 per cent in the previous month. Diesel, kerosene and LPG prices were revised in May. Prices of manufactured products went up 7.43 per cent year-on-year in June from 7.27 per cent in May.

“When you raise fuel prices it will show a little spike... I don't expect a continuing high inflation because of the fuel prices,” Planning Commission deputy chairman Montek Singh Ahluwalia said.

The government increased diesel prices by Rs 3 a litre, kerosene by Rs 2 a litre and domestic cooking gas by Rs 50 to reduce the subsidy burden and lower revenue loss of state-owned firms selling fuel below cost.

In line with overall inflation, the weekly food index, too, rose to 8.31 per cent for the week ended July 2 against 7.61 per cent in the previous week.

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