The Telegraph
Tuesday , June 17 , 2014
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Inflation adds to Iraq itch

New Delhi, June 16: Inflation jumped to a five-month high of 6.01 per cent in May as the government frets over the impact of below-normal rains on food price and Iraq turmoil on crude supply.

Even without the rain factor and Iraq, it was under the twin impact of food and fuel prices that wholesale price index-based inflation (WPI) jumped from 5.2 per cent in April to 6 per cent last month.

Food inflation quickened to 9.5 per cent from 8.64 per cent a month ago, while fuel prices were up 10.53 per cent compared with 8.93 per cent in the previous month.

Finance minister Arun Jaitley today attributed the rise in inflation partly to withholding of food stocks by traders on account of apprehension of a weak monsoon.

He said the Centre was committed to ease supply-side bottlenecks and had asked states to take strong measures against hoarders to check speculation.

“The government is committed to take measures, which will positively impact the GDP and result in higher growth than expected. I am hopeful that inflation, which is moving upwards now will eventually come down,” Jaitley said.

The rise in food inflation has been mainly on account of a 31.44 per cent increase in the price of potatoes, 19.40 per cent in fruits and 12.75 per cent in rice.

Barclays (India) chief economist Siddhartha Sanyal said, “The risks from a poor monsoon and uncertainties around global oil prices because of geopolitical tensions in Iraq remain.”

The tensions in Iraq have brought into focus the cascading effect of a spike in global crude prices on inflation. Two-thirds of India’s crude requirements are met through imports.

Such a high level of inflation was witnessed last in December when it was 6.4 per cent. The WPI inflation was at 4.58 per cent a year ago in May. The March inflation figures have been revised upwards to 6 per cent from 5.70 per cent.

CII director-general Chandrajit Banerjee said containing the price rise was of importance to revive industrial production as persistent inflation had caused interest rates to follow a tight trajectory.

“The government should develop advanced supply chains and rationalise input subsidies. It should effect a moderation in MSP and right-size buffer stock,” he said.

“With monsoon-related concerns getting compounded by the recent rise in crude prices, measures to address the supply-side causes of high food inflation have assumed added significance,” said Aditi Nayar of ICRA.