Special Correspondent

Decline in food articles helps tame price rise

  • Cheaper transportation fuels helpful
  • Cement, steel sectors go against the trend

    NEW DELHI: Even as the rate of inflation eased marginally to 6.05 per cent during the week ended February 17, thanks mainly to the effect of cheaper transportation fuels and decline in prices of certain essential food articles and a few manufactured goods, a section of the core sector, such as cement and steel, appears to be headed for a confrontation with the Government.

    Having put in place a differential excise structure in the budget for 2007-08 as a sort of reward/punishment system for cement companies, Finance Minister P. Chidambaram, at his customary interaction the very next day, appealed to the captains of industry to hold the price line and help the Government in staving off inflation.

    However, instead of obliging the Minister, not only certain large cement companies but also a number of primary steel producers almost promptly responded by revising upwards the prices of their commodities in an act of apparent "defiance". What steps the Government takes to counter the challenge now remains to be seen.

    In the event, although the point-to-point inflation based on the wholesale prices index (WPI) had just about started its downward journey from the level of 6.63 per cent in the previous week but still far away from the Reserve Bank of India's "comfort zone'' of 5-5.5 per cent for the current fiscal, the higher prices of the essential construction materials are likely to reverse the trend again.

    However, the fact remains that the measures announced in the budget to fight inflation would take some time to make an effective impact.

    Incidentally, the data on inflation, the first such released after the budget presentation, must have come as a respite to the Centre as many of the proposals contained in the annual exercise were aimed at containing prices and reining in inflation.

    For the week ended February 17, the inflation rate declined as a direct impact of the cut in the prices of petrol by Rs. 2 a litre and diesel by Re. 1 a litre.

    In fact, a major relief came from the `fuel, power, light and lubricant group' as the group index declined by 0.6 per cent.