Inflation jumps to 4.78 pc; RBI may squeeze money supply

Attributing rising prices to supply side constraints, Suresh Tendulkar, former chairman of the Prime Minister's Economic Advisory Council (PMEAC), said the RBI could take steps to withdraw liquidity to tame rising prices. The apex bank is slated to announce review of its annual credit policy next month.

Food inflation, according the weekly data announced earlier, had shot up by 19.04 per cent during November recording the sharpest increase in the decade.

The monthly data, which was released by the government for the second time, shows that potato prices have surged by a whooping 141 per cent during the past eight months, followed by sugar 37 per cent, pulses 32 per cent and onion 20 per cent.

On the other hand, minerals, edible oils and leather products have become cheaper since March 2009.

The RBI in its monetary policy review in October has revised the inflation forecast to 6.5 per cent by March-end from 5 per cent earlier.

The international raw material prices are rising so domestic prices are also seeing a movement upward, Tendulkar said, adding that the government needs to manage supply shortages.

"(The) RBI may withdraw the liquidity in terms of SLR (statutory liquidity ratio) movement but I don't see any rate changes to be done... not till the next quarterly review (in January)," he said.

The central bank has been increasing money supply for industry to tide over the global financial crisis.

The rising prices are an issue of concern for the government as a worried Congress President Sonia Gandhi had earlier said during the week that "price rise of essential commodities continues to be a matter of highest concern to us."

Among the manufactured products, textiles rose by 1.4 per cent, paper and paper products by 0.1 per cent, while chemical and chemical products increased by 0.1 per cent.

Commenting on the price rise Yes Bank Chief Economist Suhubhda Rao said, "a sharper rise in manufacturing clearly indicates that the pricing power is gradually returning as the broad group within manufacturing products have registered month-on-month increase in the index numbers."

Rao added that firming inflation will be on the RBI radar where the CRR could be hiked in December by 25-50 basis points.