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Inflation at 2-year high, govt worried

india Updated: Jan 20, 2007 03:30 IST
Arun Kumar

Expressing concern over rising inflation, Finance Minister P. Chidambaram on Friday said the government was watching the situation carefully. Data released showed that annual inflation rate rose to 6.12 per cent for the week ending on January 6, from 5.58 per cent in the previous week, its highest level in two years.

“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 CII function. “It is monetary phenomenon and the Finance Ministry is in touch with the Reserve Bank of India (RBI), Agriculture Ministry and Ministry of Food and Civil supplies.”

The sudden rise in inflation had been triggered by the base effect, he said. The price index for all commodities for the week under consideration moved only from 208.1 points to 208.2. But in the corresponding week of the previous year the index declined by 0.9 points, he said.

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

Chidambaram said the government had found that the prices of items of daily use -- such as urad, tea, tomato, coconut and arhar -- were causing concern. The government also noted a rise in the price of few manufactured items like steel products and edible oil.

In this season, normally the prices of vegetables came down, which did not happen in the same proportion, Choudhary said. “Ultimately inflation is a monetary phenomenon and is influenced by supply side. We will watch the situation carefully and take whatever steps required to be taken,” the finance minister said.