Inflation at 2-year high, Govt worried

Experts say increase in inflation rate would force the RBI to tighten interest rate further, reports Arun Kumar.

Finance Minister P Chidambaram has expressed concern over rising inflation, adding that the government is watching the situation carefully. Data released on Friday showed that the annual inflation rate rose to 6.12 per cent for the week ending on January 6, up from 5.58 per cent in the previous week. The latest figure is the highest in two years.

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"The spurt in the Wholesale Price Index from 5.58 per cent to 6.12 per cent is indeed a matter for concern," Chidambaram said on the sidelines of a Confederation of Indian Industry (CII) function. “It is a monetary phenomenon and the Finance Ministry is in touch with the Reserve Bank of India (RBI), the Agriculture Ministry and the Ministry of Food and Civil Supplies.”

Experts said the increase in the rate of inflation would force the RBI to tighten the interest rate further. “The monetary policy is not out of place and has actually factored in the inflationary trend," said Saumitra Choudhary, chief economist at ICRA. Given the inflation pressure, there could be another hike in interest rate of between 25 and 50 basis points - 0.25 to 0.5 per cent - to control the money supply, he said.

Chidambaram said the government had found that the prices of items of daily use — like urad and arhar dal, tea, tomato and coconut — were causing concern. The government has also noted the increase in the price of manufactured items like steel products and edible oil. Since December 2005, the price of a kilo of chana dal has risen from Rs 28 to Rs 44, of urad from Rs 52 to Rs 60 and of a litre of edible oil from Rs 47 to Rs 55.

Email Arun Kumar: arunkumar@hindustantimes.com