Feel not-so good: Inflation breaches 6 per cent mark

When feel-good is the flavour of the season, this doesn’t taste sweet: Increasing prices of commodities, notably diesel and petrol, hav...

When feel-good is the flavour of the season, this doesn’t taste sweet: Increasing prices of commodities, notably diesel and petrol, have pushed up inflation to a 35-week high of 6.09 per cent in the first week of the fourth quarter this fiscal as compared to 3.78 per cent in the year-ago period.

This means price levels of various goods and commodities are rising at the rate of 6.09 per cent per annum. If the upward march in inflation continues, it could put pressure on interest rates and the economy in general.

But the country’s money managers put up a brave face. Reserve Bank of India Governor Y V Reddy said the bank’s year-end inflation rate outlook remained unchanged at 4-4.50 per cent, in spite of the recent upward trend.

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‘‘Inflation is currently ruling high but it should start falling and is expected to be in the range of 4-4.5 per cent by end-March,’’ Reddy said here today.

But it’s going to be tough for the RBI and the government to convince voters about rising price levels. Remember, inflation was ruling below three per cent in 2000 before it started going up. The RBI had recently indicated that managing inflation might be difficult, citing the contagion effect of the increase in international prices of commodities and price uncertainties on the oil front.

India’s real interest rates—the difference between the nominal rate and the inflation rate—are among the highest in the world. The fiscal deficit is also expected to be more comfortable and better than what was expected earlier, Reddy said when asked about the fiscal impact of the cut in Custom duties. ‘‘We had discussions with the Finance Ministry on this issue and as per current assessment, the revenue and fiscal outlook will be better than what is estimated in the budget,’’ Reddy said.

Government data shows the wholesale price index (WPI) or inflation rose for the eighth consecutive week for the period ended January 3, by another 0.34 per cent from the week-ago level of 5.75 per cent. The more widespread indicator of inflation, the consumer price index (CPI) figures, are not yet out.

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The highest level so far recorded in this fiscal was 6.47 per cent during the week ending April 12. The buoyant growth in the second quarter of this fiscal did not have any impact on the current trends in inflation. The rate is expected to start easing in February on a fall in farm produce prices following a bumper winter harvest.

But analysts are concerned about the impact rising global crude oil prices may have on local prices. Higher inflation and a robust economy, which is expected to grow more than seven per cent in the year to March, will give the central bank less leeway to pursue a soft monetary policy, analysts said.