Inflation too high, needs to be brought down to 5-5.5%: Pranab

Inflation too high, needs to be brought down to 5-5.5%: Pranab

However, he expects inflation to moderate and come down to 6-7 per cent by March next.
"Inflation is too high.. it is not acceptable. It will have to be brought within the moderate level. Maximum in the given situation is 5 and 5.5 per cent. That's why we are making efforts...It will have to be tackled.," Mukherjee told PTI in an interview.

The headline inflation was 9.44 per cent in June, much above the Reserve Bank's comfort level of 5-6 per cent. It was 9.06 per cent in May and 9.74 per cent in April.

Besides international factors, the Minister said, rising population, hike in procurement prices and increasing purchasing power was also responsible for inflation.

"...there is a gap because demand is increasing, population is increasing, people's income is increasing. So they will buy more and consume more", he said, adding consumption of fruits, vegetables, egg and meat has been rising.

By end of the current fiscal, Mukherjee said, the inflation would calm down to 6-7 per cent from over 9 per cent currently.

Current inflation, according to a Finance Ministry analysis, "is mainly driven by seasonal effects, an upward momentum in minerals (crude petroleum), manufactured and administered fuel prices, and imported inflation".

As far as food inflation is concerned, Mukherjee said, it has come down from 22 per cent in February 2010 to 7.38 per cent.

On the impact of Reserve Bank's interest rate hike on growth, Mukherjee said, "to some extent it may effect but we shall have to see..."

"First quarter (April-June 2011) numbers are not available. Indication of the last quarter, or rather last two quarters of the previous year (is that) it is slowing down. But what has been the spillover in the first quarter is (yet) to be seen", he said.

In a bid to contain inflation, the RBI recently increased its short-term lending and borrowing rate by 0.5 basis points. This was the 11th increase since March 2010.

The rate increase evoked sharp reaction from the industry which said the decision would hurt investment by making credit expensive and throttle growth. Top industry leaders are likely to express their concern at their meeting with Mukherjee on Monday.

The economic growth, according to RBI, is expected to moderate to 8 per cent during the current fiscal from 8.5 per cent in 2010-11.

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