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Inflation stalks global economy

business Updated: Mar 20, 2008 22:28 IST
Gaurav Choudhury
Gaurav Choudhury
Hindustan Times
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India’s is not a solitary battle against inflation. Policymakers across the world are confronting a spike in commodity prices amid fears of a recession in the US.

As India’s wholesale price-based inflation rate rose to a 10 month-high of 5.92 per cent in the week ended March 8, China's headline inflation rate sprinted to 8.7 per cent in February, the highest in 11 years. In the US, the world’s largest economy, inflation is forecast at 3.5 per cent in 2008.

Finance Minister P Chidambaram has said he is ready with fiscal steps to tame inflation and chances of a cut in interest rates by the Reserve Bank of India (RBI) in its next monetary policy review in April are growing slim.

Chinese Premier Wen Jiabao said earlier this week that 2008 might be the most difficult year for an economy trying to balance development with inflation control. The Chinese central bank will raise the bank reserve ratio by half a percentage point to 15.5 per cent from March 25 to suck an estimated 200 billion yuan ($28 billion) out of the system.

Vietnam, which has averaged 8 per cent growth in the last five years, saw consumer inflation jumping to 15.7 per cent year-on-year in February. In South Korea, consumer prices grew 3.6 per cent in February from the previous year due high crude oil food prices.

Unlike Beijing and New Delhi, Seoul has sought to tame prices through tax cuts on gasoline and oil products and it could lower import tariffs on wheat, corn and some other farm goods.

Inflation is also sweeping through Europe. Annual inflation in Germany is close to its highest in 14 years, while inflationary pressure in the Euro zone is at a record 3.3 per cent, strengthening the argument for the European Central Bank (ECB) to keep interest rates on hold. Inflation in the UK rose to a nine-month high of 2.5 per cent in February.

The ECB aims to keep annual inflation below 2 per cent and has kept the benchmark interest rate unchanged at 4 per cent since June 2007, despite the US Federal Reserve’s successive rate cuts. ECB President Jean-Claude Trichet said last month that addressing inflation was important, particularly in the backdrop of financial turmoil.

Back home, the Reserve Bank of India has raised benchmark interest rates several times to contain inflation. Inflation had peaked at 6.69 per cent in early 2007. Hardening interest rates, however, have slowed industrial growth, pushing it down to 5.3 per cent in January from 11.6 per cent in the same month of 2007.