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LATEST NEWS UPDATES | Rough ride ahead

Rough ride ahead

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published Published on Jul 16, 2010   modified Modified on Jul 16, 2010

Hopes of an early respite from mounting price pressures have been belied by inflation numbers released on Wednesday. The wholesale price index for June 2010 is up 10.55% against a rise of 10.16% in May. Worse, the number for April has been revised up from 9.59% to a 19-month high of 11.23%. If the same order of revision continues , the June number could well cross 12%, a dangerously high level in a democracy where public tolerance for inflation, quite unlike in Latin American countries, is perilously low. The spike in June is mainly on account of the hike in fuel prices effected on June 25. This has pushed the index for the ‘fuel, power, light and lubricants’ group up 1.7%. Unfortunately, one cannot take much comfort from that as the second order effects of the increase in fuel prices will, typically, take a while to work their way through the system. Consequently, the inflation number for July could be still higher. Add to that the fact that prices of primary articles show no sign of retreating — pulses are up 32.6%, cotton textiles are up 18.8% and minerals are up 28.5% — and there is little to cheer on the price front. Till a few months ago, the government could claim that the problem was essentially supply shortage of food items, but not any longer. With mounting evidence that inflation is no longer confined to food articles but has spread to manufactured articles, policymakers will have to act. The monsoon months often play havoc with supplies, posing a special challenge to the government to ensure availability of foodgrains, especially to the poor. Simultaneously, a coherent programme to step up agricultural output across the board has to be set in motion, without delay.

The problem is that once the inflation genie is out of the box, there is no quick or sure way of getting it in again. Monetary measures, apart from being slow-acting , are effective only when they are pre-emptive rather than reactive . And though the Reserve Bank of India (RBI) has tried to make up for lost time by raising rates twice in quick succession this fiscal year, it would be naïve to expect any quick-fix solutions. India now has the highest inflation rate in Asia. And in a country that is home to a third of the world’s poor, that could have serious repercussion for both macroeconomic as well as political stability.


The Economic Times, 16 July, 2010, http://economictimes.indiatimes.com/opinion/editorial/Rough-ride-ahead/articleshow/6174686.cms


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