Govt concerned over inflation; to take appropriate steps: Pranab

Posted on    15 June 2011


Expressing concern over rising inflation which surged past 9 per cent in May, Finance Minister Pranab Mukherjee on Tuesday said the government would take appropriate action to contain prices.


"We would keep a close watch on developments, both domestic as well as international, in the coming months and make appropriate adjustments as we go along", he said in a statement.

The inflation, as per the data on the Wholesale Price Index (WPI), went up to 9.06 per cent in May from 8.66 per cent in April following an increase in prices of essential items like fruits, milk, petrol and manufactured goods.

Pointing out that inflation for May at 9.06 per cent was lower than 10.48 per cent recorded a year ago, Mukherjee said, "the picture for the latest month is however mixed."

While food and primary inflation has declined, "core inflation (that is other than food, fuel and power inflation) continues to harden...this poses some concerns which will have to be addressed", he said.

Referring to rising prices of essential kitchen items, he said, "other than fruits, inflation is moderating in all food items".

The rate of price rise in non-food primary articles, he said, is still high at 22.35 per cent, though it has moderated from 27.33 per cent in April.

This decline in inflation of non-food articles, Mukherjee hoped, would help in moderating the inflationary tendency in the economy in the coming months.




Inflation up to 9.06% in May, pressure from manufactured items


Headline inflation in the country went up to 9.06 pc in May on the back of rising manufactured products and petrol prices, which is expected to prompt the Reserve Bank to go for another rate hike at its mid-quarterly policy review meeting later this week.


Inflation, as measured by the Wholesale Price Index (WPI), stood at 8.66 percent in April. It had stood at 10.48 percent in May, 2010.


Meanwhile, as per data released by the government on Tuesday, overall inflation in March this year has been revised upward to 9.68 percent from the provisional 9.04 percent.


As per the latest data, prices of manufactured products, which have a weight of around 65 percent in the WPI basket, went up by 7.27 percent year-on-year in May.


Manufacturing inflation has been steadily rising since February this year, when it crossed the 6 percent mark. It was 6.18 percent in April.


As per the data released on Tuesday, inflation in the fuel and power segment, which has a weight of almost 15 percent in the WPI basket, stood at 12.32 percent year-on-year.


This showed a slight moderation from the 13.32 percent rate reported in April.


However, the rate hike of over Rs 5 in petrol prices by state-owned old marketing companies in mid-May had a visible impact, with prices of the item going up by 27.31 percent on an annual basis.


During the month under review, primary articles went up by 11.30 percent on an annual basis as against 12.05 percent in the previous month. Primary articles have a share of around 20 percent in the overall WPI basket.


Within the primary articles segment, food articles became 8.37 percent more expensive, while prices of non-food primary articles went up by 22.35 percent. Both the numbers were down from the previous month.


The RBI has already hiked key policy rates nine times since March, 2010, to curb demand and tame inflation.


With headline inflation remaining high, as shown by the latest numbers, it is now almost certain that the apex bank will go for another hike at its 16th June mid-quarterly review.


Experts have said that such action is inevitable and the RBI had also said in recent times that taming inflation is the biggest challenge before it.


However, the latest inflation numbers are in line with RBI's projection for the first half of the fiscal.


In its monetary policy for 2011-12 released last month, the central bank had said that continued high prices of global commodities, particularly of oil, will continue to drive the rate of price rise.


It projected inflation to average 9 percent for the first six months of 2011-12 before moderating to around 6 percent by the year-end.


Both the RBI and other experts had also said that inflationary pressure during the next few months would be more from commodity prices, rather than on account of food items, as was the case in 2010.


However, food inflation also inched up to above 9 percent in the last week of May after a two-month-long period of moderation.


Headline inflation has been above 8 percent since January, 2010.


The latest numbers come as a setback to the government after a slew of bad news, including five-quarter low GDP growth of 7.8 percent in January-March and a slowdown in factory output growth to 6.3 percent in April.


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