Inflation shoots up, prices skyrocket

Decontrol of fuel prices advocated

Notwithstanding Union finance minister Pranab Mukherjee’s repeatedly comforting assurances since he presented the budget in the last week of February, the inflation rate surged to 10.16 per cent in May.

The high rate particularly hits the home budget the most as prices of food items continued to surge, with the latest food inflation rate, announced last week, recording 16.74 per cent.    



As if to add fuel to this inflation fire, chief economic adviser to the Finance Ministry, Kaushik Basu on Monday advocated decontrolling of fuel prices. “I think that some decontrolling of fuel prices is ought to be done. This may raise inflation level in the short-run. But six months down the line, inflation may in fact come down,” as it would check fiscal deficit, he told newsman here.

Soon after presenting his budget in February, Mukherjee had promised that the inflation rate would moderate soon after the rabi harvest, which was expected to be good, hit the market. That has, however, not happened. The minister had expected the high price of pulses to ease after the arrival of rabi harvest in the market. But the situation is that pulses, fruits and vegetables have remained beyond the reach of comman man. Furthermore, the prices of metal, textiles and plywood prices have also gone up this showing that inflation has spread to non-food items.

As the latest inflation figures were out during the day in the national capital, the finance minister, who was away in Patna, appeared worried. “Inflation remains a matter of concern, and I believe it will remain high till mid-July,” he told newsmen in Patna.
What is more worrisome is that the rate of inflation could be actually higher that the 10.16 per cent figure for May. This is because, as against the initial estimate of 9.9 per cent inflation rate for March, the actual rate turned out to be 11.04 per cent. The final inflation figure for May would be known only in the next few months.

Mukherjee hoped that the inflation rate would ease by next month end. But Basu said that food prices would stabilise over the next six months’ time as there were visible trends suggesting this.

The government, however, appeared to be clueless on tackling the situation. It could find it difficult turn to the Reserve Bank to tinker with key rates to check money supply or credit availability as these rates have been changed twice since February with a view to tame inflation.  

Mukherjee hinted that there was no proposal to hike interest rate as of now. “The Reserve Bank of India will address the issue as and when the situation arises. Of course, it will consult the Finance Ministry before arriving at any conclusion,”he said. The government will find it extremely difficult to hike key rates as this will hurt the economic recovery plans.