Ballooning inflation

The rise in inflation has followed other bad news.

The surge in inflation for the month of April is uncomfortable proof of the fact that the falling trend of the recent past was more deceptive than real. The headline inflation for the month registered a rise of 7.23 per cent, sharply higher than the 6.89 per cent of the previous month. The rise is lower than the 9.74 per cent recorded in the same month last year but that provides no consolation. Of special concern is the fact that food inflation, which increased 10.49 per cent, was the main contributing factor. Even among the food articles it was vegetables and other perishables which marked the highest increase in prices. The high rise in prices of these articles has hit every one badly.

Unseasonal rains which damaged the crops and lack of adequate storage capacity for perishables are the reasons given for their short supply and the consequent rise in prices. Both are factors on which there is little control. But the need for cold chains which help to preserve perishables has been talked about for long but no significant action has been taken for that. Import of perishable food items at short notice is extremely difficult and in any case will not work out when the rupee is hitting new lows every week. The prices of pulses and edible oils have also gone up. Even in the case of food grains, of which stocks are available though storage capacity is inadequate, the prices have increased, though not to the extent of the rise in prices of vegetables. The changing consumption patterns may also be a reason for the rise in prices of perishables but none of these can be a solace for people who have to pay dearly for food.

The rise in inflation has come at a time when there is much other unhelpful news. Industrial production has been slowing down. There is a series of downgrades by credit rating agencies, starting with the economy in general and going on to banks and financial institutions. The Reserve Bank of India, which cut the repo rate last month expecting inflation to slow down, will now have to rethink its policy. In any case there will not be any rate cuts in near future, to boost growth. More ominously,  petroleum prices may be increased soon and that will further fuel price inflation. The government has expressed concern over the latest inflation figures, but shouldn’t it go beyond that?