Special Correspondent

Surge in prices is due to fuel price hike, more money flow

CHENNAI: The recent surge in prices has both policymakers and the common man worried, but the current trends show that the rate of inflation may easily touch 13 per cent in the near future, D. K. Srivastava, director, Madras School of Economics, said on Tuesday.

Speaking at a seminar, ‘Hedging against Inflation,’ organised by the Southern India Chamber of Commerce and Industry (SICCI), he said the cause of the surge in prices was the fuel price hike, coupled with the increased money flow and the dependence on energy-intensive growth. Though the food prices did increase in the last few months, Dr. Srivastava said the upsurge had a clear correlation with the increase in the prices of fuel and allied products, which went up from 7.86 per cent in the first week of June this year to 16.25 per cent.

C. R. Rajan, president-strategy, Murugappa Group, said external factors and monetary supply were crucial factors, but the neglect of agriculture had contributed to the inflation. Financial institutions were turning to commodity markets to recoup the losses incurred in other markets, sparking speculation.

Increased speculation was the major cause for this latest price rise, M. R. Venkatesh, chartered accountant, said, arguing that loose regulatory controls on foreign investments had created both a market for speculation and an uncontrolled flow of money, driving up the prices. “If the rise in share prices is a stock market boom, and the rise in land prices is a real estate boom, why do we not call a rise in potato price an agricultural boom?” he asked.

However, T. G. Senthil Velan, assistant vice-president, Multi-Commodity Exchange of India, said futures were essential to discover the actual prices of goods and to ensure that money was used efficiently. In this context, he said, speculation was helpful.

J. Chandrasekharan. Chief General Manager (Chennai Circle), State Bank of India, said there was no way to point out the single most important cause of the price rise, but it was unanimously understood that tougher policy measures were required to control further increase. Industry should ensure that growth did not come down too fast, causing supply-side issues to go with the current crisis, Dr. Srivastava warned.