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Inflation eases, respite for govt

business Updated: Apr 17, 2008 22:11 IST
Gaurav Choudhury

After accelerating through five straight weeks, India’s inflation rate eased to 7.14 per cent as on April 5, giving some respite to a worried government that has come under fire from opposition parties as well as political allies for the sharp rise in prices.

Official data released on Thursday showed the wholesale price index (WPI)-based inflation eased in the week ended April 5, because of a fall in prices of fruits, gur and certain edible oils, where the government has announced major tax cuts to boost supplies..

Economists said the drop in the inflation rate to 7.14 per cent from 7.41 per cent in the previous week was also because of what is called a “base effect” — meaning the price index was already at a relatively higher level in the same week last year.

The government measures, except those for edible oil, would take some time to kick in, they said.

The country annually consumes about 10 million tons of edible oils, with imports contributing half of that. In February, India’s vegetable oils imports grew by nearly 300 per cent to 430,000 tonnes compared with 150,000 tonnes in the previous year. This month the government slashed import duties on several varieties of edible oil including sunflower oil, palm oil, vanaspati and olive oil. The prices of vegetables, tea, pulses and coconut oil, however, continued to rise, while those of steel and aviation turbine fuel also rose in the latest reported week.

“A fall in edible oil prices is partly reflected in the dip in inflation rate, but it is also because of a high base last year,” said DK Joshi, principal economist of consulting and credit rating firm Crisil.

All told, the inflation rate is still at worrisome level and threatens to derail the “India growth story”.

Jayati Ghosh, a Professor of Economics at Jawaharlal Nehru University, said a fall in prices would primarily depend on how the government handles the food economy.

Finance Minister P Chidambaram told parliament on Wednesday that the government, which has already slashed food duties and banned exports of pulses and other foods, would come down hard on steel and cement companies if found to be forming a price cartel.