Prices of five essentials under lens: Chidambaram

Inflation rate falls to 3.35 p.c.; stable interest rates likely

Special Correspondent

NEW DELHI: The Centre is closely monitoring the price movement of sugar, wheat, rice, steel and cement, apart from crude oil in the global market, said Finance Minister P. Chidambaram on Friday, even as the rate of inflation for the week ended August 6 dropped further to more than a two-year low of 3.35 per cent.

Putting the five essential items and crude oil under the lens is necessary as any major fluctuation in the prices of these items goes a long way in determining the movement of the wholesale price index (WPI) and the consequent inflation rate.

With the fall in the rate of inflation, a good augury for the Finance Minister is that in the coming months, the interest rates are also likely to remain stable.

In fact, the fall in the inflation levels during the last few months has eased the pressure on interest rates. "I do not expect any change [in interest rate] in the medium term," Mr Chidambaram told newspersons while reacting to the heartening news on the softening of the price spiral.

Explaining, he said, "Inflation is down because the supply side is good and the Reserve Bank of India is doing an adroit management of money supply." For over two years now, the RBI has maintained the Bank Rate at 6 per cent.

Although happy over the fall in the inflation rate, the Finance Minister noted that he had to be cautious, as there was no room for complacency on this count. "One has to be careful and vigilant. We are carefully watching five items — sugar, wheat, rice, steel and cement," Mr Chidambaram said.

Mr Chidambaram conceded that the spurt in international crude oil prices, which has been hovering around $ 63-64 a barrel, was bound to have an adverse impact on the oil companies and domestic prices. "Crude oil prices are indeed impacting the balance-sheets of oil companies. If it does not moderate, it is bound to impact oil companies," he said.

As an immediate impact, the spurt in global crude prices has increased the under-recoveries and losses of the public sector oil companies.

If the domestic petroleum product prices are not adjusted, some of the oil companies may turn financially sick by next year and beyond.

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