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Inflation surges to 40 months high of 7.41%

In just five weeks that ended March 29, India’s headline inflation rate has jumped from 5 per cent to 7.41 per cent, the highest since November 2004, reports Rajesh Mahapatra.
Hindustan Times | By Rajesh Mahapatra, New Delhi
UPDATED ON APR 12, 2008 02:07 AM IST

High prices are here to stay, and you have to learn to live with it. That’s what the government’s own data suggests. It’s also the refrain among consumers and traders alike.

In just five weeks that ended March 29, India’s headline inflation rate has jumped from 5 per cent to 7.41 per cent, the highest since November 2004, according to official data released on Friday.

Concerned about the political fallout of the rising cost of living in an election year, the government has brought a slew of measures, including reduction in duties on several products, to rein in prices. But there has been little impact, as much of the spike has come on the back of a global surge in prices of food and commodities including minerals and metals such as iron ore and steel.

“The government doesn’t have a magic wand,” Science and Technology Minister Kapil Sibal said, coming out of a Cabinet meeting. “We are exceptionally concerned about the rising inflation.” Friday’s data, which is based on wholesale prices, captures only a part of the story. The pinch is bigger as retail prices have risen even faster.

An overwhelming 89 per cent of respondents participating in a countrywide survey by Hindustan Times and C fore said their household budget has been hit by rising prices. Worse, 60 per cent of them fear this situation could persist for more than a year. When inflationary expectations are high, the RBI tightens monetary policy to leave less cash with consumers. If that happens, you may end up paying more in EMI, over and above your rising grocery bill.

The hardening of the inflation rate appears to have neutralised the impact of this year’s budget, which cut taxes in a bid to leave more money in the hands of taxpayers. The giveaways were intended to help the UPA – whose tenure ends in May next year — in case it chose to hold general elections early.

Sixty-two per cent of the respondents to the HT-C fore survey said the price issue would have a bearing on their vote if general elections were held this year. That number is even higher, 71 per cent, for Delhi where state elections are due later this year. Sixty-one per cent said they felt the government isn’t doing enough.

Policymakers appear helpless. “Inflation is a global phenomenon; we are importing inflation,” Sibal said.

On Friday, the government banned export of cement and withdrew incentives for steel exporters, in a bid boost availability of these in the domestic market. It also reiterated its threat to clamp down on hoarders.

Earlier this month, the government cut duties on edible oil imports and banned export of non-basmati rice. Commerce minister Kamal Nath said more such measures will follow.

“Some steps could bear fruit and the headline number may reduce. But it may still stay close to 7 per cent,” said A. Prasanna of ICICI Securities.

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