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Inflation climbs higher, govt gropes for options

business Updated: Jan 15, 2011 02:18 IST
Hindustan Times

With latest figures again showing prices are continuing to spiral upward, finance minister Pranab Mukherjee on Friday termed food inflation as "unacceptably high".

India’s wholesale price index (WPI) climbed to 8.43% in December — up from the previous month’s 7.43% — reflecting sharp increase in the prices of several essential commodities, data released on Friday showed.

Food inflation rate, released a day earlier for the week ending January 1, stands at 16.91%.

"Food inflation at this level is not acceptable and we are trying our best to control it with the cooperation of the state governments," Mukherjee said.

He has called a meeting of all state finance ministers in Delhi on January 19 to find a way to cool prices.

Given this level of inflation, the Reserve Bank of India is expected to raise key borrowing rates. This will push up EMIs of home and consumer loans.

World Bank group president Robert Zoellick, currently in India, blamed supply constraints for the high prices. "My own sense in the case of the Indian economy is that some of the inflationary pressures are more likely a function of some of the bottlenecks on the supply side than they are from the demand side," he said.

Making matters worse, crude oil prices are beginning to inch up towards the worrisome $100 a barrel mark.

In India, which imports two-thirds of its crude oil requirements, the government is groping for options to tame prices without upsetting growth.

"You can help consumers, but providing subsidies (in fuel prices)... is not helping inflation in the long run," Mukherjee said.

The government announced a series of measures to check food prices on Thursday, but these are unlikely to have any immediate impact.

"India's inflation pressures are a combination of demand and supply factors for both food and non-food categories," Rajeev Malik, senior economist with Singapore-based broking firm CLSA said. "Enhancing food output has to be a key focus."