M A I N   N E W S

Inflation soars to 2-yr high
Matter of concern, says FM
R. Suryamurthy
Tribune News Service

New Delhi, January 19
Even as the government drags its feet on the fuel price cut, the inflation rose to a two-year high of 6.12 per cent, leaving Finance Minister P Chidambaram with “concern” as the Assembly polls in three Congress-ruled states are round the corner.

"It is indeed a cause for concern.... We will take whatever steps are required to check inflation," Mr Chidambaram said. He said items of daily use such as urad, tea, tomatoes, coconut and arhar were causing concern. He also noted a rise in price of few manufactured items like steel products and edible oil fuelling inflation.

The barometer of prices at the wholesale level stood at 6.12 per cent for the week ending January 6 as compared to 5.58 per cent in the previous week due to costlier food and energy products, the government said today. It was the highest inflation rate since December 25, 2004.

Mr Chidambaram said his ministry was in touch with the RBI and the Ministry of Agriculture and Consumer Affairs on the issue. However, the prices of pulses, edible oil in futures market showed an upward trend.

Meanwhile, Petroleum Minister Murli Deora maintained that the government would wait for the international prices to stabilise before announcing any cut in domestic petrol and diesel prices.

The government had earlier stated it would review prices if the global prices fall before $50 per barrel, but now wants to wait for the prices to stabilise.

However, the Assembly election in the three states - Punjab, Uttarakhand and Manipur - where the Congress is in power, could force the government to review its stand as price rise could mar the political fortunes of the party in these states.

With Assembly polls in Uttar Pradesh due later this year, and the UPA government in its mid-year of its term, the Finance Minister would have little room to manoeuvre when he presents his Budget for 2007-08. While there is a considerable pressure to increase the pace of reform from the industry, he also has to lay the road map for the country to grow at double digit.

This has fuelled expectations that the RBI could increase its interest rates when it reviews its monetary policy on January 31. Some analysts expect the RBI to hike both repo and reverse repo rates by 25 basis points.

The central bank had raised its main lending rate, known as the repo rate, four times last year to 7.25 per cent in an effort to rein in credit growth and rising prices, and in the past month it also increased the amount of cash banks have to leave with it on deposit.

Mr Venugopal N. Dhoot, President of Assocham, said rise in prices of essential commodities was due to mismatch in their supply and demand. He said, “The inflation rate is set to exceed further at least for 2-3 months until supply demand management is managed by government interventions” and suggested corrections in the RBI’s forthcoming monetary policy by making adjustments in both repo and reverse repo rates.



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