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Home / Business News / No let-up in prices, inflation at 42-month high

No let-up in prices, inflation at 42-month high

India’s inflation rate shoots up to a three-and-a-half-year peak of 7.57 per cent, driven primarily by higher food prices and some metals.

business Updated: May 02, 2008, 23:02 IST
HT Correspondent
HT Correspondent
Hindustan Times

India’s inflation rate shot up to a three-and-a-half-year peak of 7.57 per cent, driven primarily by higher food prices and some metals but the government maintained the price line would come down as recent measures start kicking in.

“Inflation will be tamed and food prices will come down sooner than other prices,” Finance Minister P Chidambaram said in Bangalore.

Separately, the Agriculture Ministry in New Delhi said that wheat procurement by government agencies this season have crossed 150 lakh tones.

“Government agencies have procured 154.2 lakh tonne wheat on May 1 as compared to 82.4 lakh tonne on the same day last year,” it said in a statement

The pace of procurement in the current season is also faster as compared to that in the last season, the statement said.

The inflation rate, which was 7.33 per cent last week, reached a high of 7.57 per cent following a spike in prices of rice, milk, tea, vegetables and steel sheets, a key intermediate product for construction and automobiles, rose.

Economists expect food grain prices to come down marginally in wake of better procurement, but cautioned that pressure on inflation was likely to continue for several months.

The rise in inflation rate was also partly due to a statistical phenomenon called the “base effect”. As inflation rate is measured on a year-on-year basis, a lower rate last year could translate into a high rate in the current year even though the actual price rise may not have been as high.

“The present rise in inflation rate is partly due to a base effect, but actual prices have also risen,” Principal Economist of credit rating and consulting firm Crisil D.K.Joshi said.

Joshi expected prices to moderate marginally in wake of the good procurement. “The wheat procurement has been good and if the monsoon are normal as expected than prices would moderate,” he said.

The wholesale price index (WPI)-based inflation rate has hovered above 7 per cent in the last few weeks, forcing authorities to take a series of fiscal and monetary steps.

The government has banned export of certain basic staples like rice and lentils and cut customs duties on other items to try to rein in inflation.

On Tuesday, the Reserve Bank of India (RBI) raised cash reserve ratio (CRR), the amount of funds banks have to keep as deposit with the central bank, by 0.25 percentage points to 8.25 per cent to tame inflation.

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