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Danger signals ahead: fuel prices not yet factored in

business Updated: Jun 16, 2011 21:27 IST
HT Correspondent

The Reserve Bank of India (RBI) had a strong message for everybody in its mid-quarter review of the monetary policy: Brace yourself for a spell of high inflation, at least in the near term.

India’s wholesale prices based inflation surged to 9.06% May, driven by costlier fruits, protein-based items such as milk, egg, meat and fish, and manufactured food.

Food prices are also set to rise in the next few weeks following a possible hike in prices of diesel and LPG that will pinch household budgets even more, already pummelled by bout of relentless rise in prices of most goods.

“The headline numbers understate the pressures because fuel prices have yet to reflect global crude oil prices,” the RBI said in its review. “Domestically, inflation persists at uncomfortable levels.”

High food prices — it grew by 13.5% in 2010-11 — and commodity prices are fanning prices of most manufactured goods.

Core inflation or non-food manufactured goods inflation has picked up over the last three months from an average 5.0-5.5% between June and October, 2010 to more than 7% in May and it now appears to be more firmly on the central bank’s vigilance radar than a quarter ago.

Indications are that oil companies will raise diesel prices in the next few weeks. High transport fuel prices will push up the cost of ferrying products across locations and knock up prices of most goods.

“Going forward, notwithstanding both signs of moderation in commodity prices and some deceleration in growth, domestic inflation risks remain high,” the RBI said.

The increase in non-food manufactured goods (core) inflation is of particular concern as, apart from reflecting higher commodity prices, it also suggests more generalised inflationary pressures from rising wages and costlier services.