As if a high current account deficit (CAD) leading to a sharp depreciation in the value of the rupee, coming close on the heels of a steep 3.5 per cent contraction in industrial growth in March, was not enough bad news, the WPI (wholesale price index) data released on Monday revealed a fresh bout of inflation.
As per the WPI data, headline inflation in April inched up yet again to 7.23 per cent from 6.89 per cent in March, primarily owing to a spike in the prices of almost all edibles such as vegetables, milk, meat, fish and other protein-rich items. As a result, providing no respite to the common man, food inflation surged to 10.49 per cent in April, 2012, from 9.94 per cent in the previous month to show a reversal of the declining trend.
Although the inflation level for the first month of this fiscal is much lower than the 9.74 per cent recorded for April, 2011, the fresh spurt in food inflation is particularly disconcerting for the government and the Reserve Bank of India (RBI) as the two working in tandem are now faced with a double whammy of low industrial growth and high inflation.
For the moment, India Inc.'s hopes of a further cut in interest rates aimed at reviving corporate investment and consumer demand to spur industrial growth seem to stand dashed to the ground, as any move to tackle any of the two maladies would severely impact the other. Little wonder, therefore, that while expressing serious concern over the price spiral, Finance Minister Pranab Mukherjee has little to offer to tackle the problem in the near or medium-term.
“Food inflation is a matter of concern, particularly it has reached the double digit ... Food inflation can be tackled by creating storing facilities and cold chain and also is required the institutional reforms in the agricultural marketing. In both these areas, State governments have to take appropriate steps. I will also discuss with them,” he said. Looking at the problem from an economist's perspective, Prime Minister's Economic Advisory Council (PMEAC) Chairman C. Rangarajan said: “The inflation numbers are a very uncomfortable statistic. Many people have been calling for an easing in monetary policy but it makes difficult for the RBI to moderate policy. It is not a good sign.”
The PMEAC chief went on to point out that there was a need for policy action to contain inflation as such a high rate of price rise was unacceptable. Dr. Rangarajan's view, ostensibly, is towards veering round to a toughening in monetary policy stance by the RBI which, in effect, would tend to depress industrial output further.
Thankfully, however, core or manufacturing inflation in April at 5.12 per cent is still in a downtrend and the Finance Minister expressed satisfaction over the decline. “...core inflation is on whole satisfactory ... and manufacturing is also under declining trend … There has been some marginal increase in the numbers ... On the whole, I feel that inflation will be 6.5-7.0 per cent for 2012-13,” he said.
Clearly, the immediate problem at hand is containing the food price spiral. Among the food items, vegetable prices soared by a massive 60.97 per cent.
Alongside, keeping pace were pulses which turned dearer by 11.29 per cent in April year-on-year as did milk prices by 15.51 per cent and eggs, meat and fish by 17.54 per cent.
