Prices are stabilising: govt

The rate of inflation inched up again, rising to 11.91 per cent in the week ended July 5, but the government said prices of most essential commodities have stabilised and that the worst may be over.

Finance Minister P Chidambaram on Thursday acknowledged that there was still pressure on prices, but said “there are signs that monetary steps are taking effect.”

The Reserve Bank of India, which has repeatedly increased interest rates and the reserve requirement for commercial banks in a bid to suck out extra cash from the system, opted for another round of rate hikes on June 24.

“M3 (money supply growth) is slowing down,” Chidambaram told reporters.

“Prices of essential commodities which include food grains, pulses, edible oils, vegetables, dairy products and some other commodities including kerosene, soap and safety matches have more or less stabilised,” a finance ministry statement said.

The battle against inflation, which threatens to derail India’s growth story, has lately got a boost with global crude prices dropping sharply – Nymex crude fell more than $12 through Tuesday and Wednesday following comments from US officials that consumption in the world’s largest economy was headed down.

The fall in crude prices will moderate inflationary expectations, even though the headline number may remain high at least until end of this year, said DK Joshi, principal economist at credit rating agency Crisil.

“Given that the second round impact of domestic fuel price hike — in terms of rising input costs — is beginning to unfold … we expect the inflation to remain high till December,” said Kaushal Sampat, chief operating officer of consulting firm Dun & Bradstreet India.