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FM presses caution button on oil prices

P Chidambaram says the falling rate of inflation is cause for happiness but noted that supply-shortage of essential items need to be addressed, reports Gaurav Choudhury.

business Updated: Sep 08, 2007 01:13 IST
Gaurav Choudhury

Finance minister P Chidambaram on Friday said the falling rate of inflation, which dipped to a 16-month low of 3.79 per cent, was cause for happiness but noted that supply-shortage of essential items need to be addressed.

“It is a cause for happiness. It is a cause for concern,” Chidambaram said.

The finance minister said the falling rate of inflation was reflective of good macro-management. “I have been saying whatever steps have been taken from time-to-time have yielded good dividends”, he said.

Chidambaram also struck a note of caution about rising crude oil prices as it could have a direct bearing on the overall domestic price situation. “Since crude oil prices are at $74 per barrel... so the outlook is of caution,” he said.

Chidambaram also said that the issue of demand-supply mismatch of essential commodities ought to be addressed for prices to come down. “That can only happen if the demand-supply mismatch is addressed. We have to address the supply-side issues of pulses, food, and vegetables,” he said.

“Ultimately, the homemaker’s concerns about prices of essential commodities need to be addressed,” he said.

The wholesale price index, which stood at 3.94 per cent for the week ended August 18, has remained below the four per cent mark for the second week in a row and is much lower than 5.27 per cent recorded in the corresponding week of last year.

According to Laveesh Bhandari of Indicus Analytics, “Given the system’s inability to deal with shocks, with the continued growth momentum, once the seasonal effect on prices fades, once the festival demand kicks in, once the long overdue fuel price adjustment takes place, the inflation numbers will move towards our projected 5.5 per cent.”