Overall inflation surged to 8.43 per cent in December from 7.48 per cent in the previous month, mainly driven by the runaway increase in food prices which Finance Minister Pranab Mukherjee himself termed as ‘unacceptably high'.

The headline WPI (Wholesale Price Index) data for December released here on Friday reveal that while fuel and power inflation inched up to 11.19 per cent during the month from 10.32 per cent in October, the manufacturing sector inflation actually eased to 4.46 per cent from 4.56 per cent.

In effect, food prices were the prime contributor to the surge and considering the fact that the October headline inflation figure stands revised to 9.12 per cent from provisional of 8.58 per cent, the final number for December may be still higher on revision if the rising trend persists.

In the event, even as it is almost certain that the Reserve Bank of India (RBI) is going to hike its key rates by at least 25 basis points during its policy review on January 25, doubts have been raised as to whether monetary measures would be effective in taming the current bout of inflation led by high food prices stemming from supply constraints.

With vegetable prices higher by 22.90 per cent in December as compared to the previous month and onions and potatoes dearer by 34.86 per cent and 16.29 per cent dearer, food inflation remained at a high throughout the month and peaked to 18.32 per cent before easing to 16.91 per cent for the week ended January 1, 2011.

Ongoing exercise

In its ongoing exercise to combat inflation almost on a mission mode, even as the government has asked states to look into the supply bottlenecks and initiate action against hoarders, Mr. Mukherjee noted that he would raise the issue of high inflation during his meeting with State finance ministers.

“Food inflation at this level is not acceptable and we are trying our best to control it along with the cooperation of state governments…On 19th January, I am having a meeting with the State finance ministers in connection with ensuing budget...I will also raise this inflation issue in the meeting. This is a continuing battle,” Mr. Mukherjee said.

As for the steps that the RBI is expected to put in place, Prime Minister's Economic Advisory Council Chairman C. Rangarajan economic panel favoured ‘some tightening' of money supply by the apex bank. “The inflation rate for December has turned out to be much higher than what was originally expected... Given the present situation, perhaps some tightening on the part of the Reserve Bank may be required,” he said.

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