Inflation at 8.1% for week ended May 17

[N.Sukumar]

The government’s administrative and fiscal measures failed to have the
desired effect on soaring prices as inflation for the week ended May
17 moved up sharply to 8.1 per cent. Wholesale price inflation was
pegged at 7.82 per cent for the week ended May 10, compared with 7.83
per cent and 7.61 per cent for the week ended May 3 and April 26,
respectively, and 3.7 per cent recorded at the beginning of 2008.

Thus, as surging food and fuel prices have propelled the inflation to
its highest level in nearly four years, there are more reasons worry
as the Planning Commission, in its internal assessment, has estimated
the inflation to rise to 8.5 per cent in the next three months, before
starting to come down. The Commission expects the inflation to come
down to 3.5 per cent only by March next year.

The Commission's assessment is that after the monsoon, inflation will
start falling with the influx of food items in the domestic market and
some respite in the international food market. "The estimate of 3.5
per cent inflation is on the basis of our expectation that agriculture
production would rise to over three per cent, thereby providing
relief," the Commission says.

Whatever be the case, the continuing upsurge in the inflation is a
cause of concern for the government, even as finance minister P
Chidambaram asserting that the rising prices will not have much of an
adverse impact on the UPA government. "We are doing everything to
control the situation, but I don't think it (price rise) will have too
adverse an impact on our government," he said in an interview
recently.

Surprisingly, the WPI number for March 15 was revised sharply upwards
to 8.02 per cent from 6.68 per cent, the highest inflation rate since
September 2004.

Chidambaram said while the average inflation in the 70s and 80s was
well over 8 per cent, the tolerance level of price rise has come down
drastically. "Since the turn of this century, I think tolerance level
of inflation is only four to five per cent," he said, adding "the
moment the figure goes beyond five per cent, there is a resentment and
naturally political parties seize the opportunity to feed this
resentment."

Despite a slew of administrative and fiscal measures like ban on
export of cement, wheat and non-Basmati rice and scrapping of customs
duty on a host of edible items, inflation has crossed 8 per cent,
giving a handle to the opposition parties in an election year.


N.Sukumar
Research Analyst