ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Beast of Inflation

Years of neglect of the food sector by the government are now coming home to roost.

All illusions that the beast of inflation had been tamed were surely shattered with the wholesale price index (WPI) (provisional) rising sharply on an annual point-topoint basis to 6.68 per cent in the week ending March 15, 2008. This was higher than the peak of 6.56 per cent registered in the corresponding week a year ago. In a rapid rise, WPI inflation has increased by more than a percentage point in just two weeks. And with the final WPI showing inflation a good half a percentage point higher than the provisional figures, it should not be surprising if wholesale prices are already rising at more than 7 per cent on an annual basis.

In 2007, wholesale price inflation crossed 6.6 per cent in March before gradually easing off to touch a low of 3.1 per cent in December. That decline was brought about through a combination of monetary measures taken by the Reserve Bank of India and imports to increase the availability of food products. The ongoing spurt in prices is not the result of excessive liquidity flowing from strong capital inflows and will therefore not be amenable to monetary action. Prices have been rising the sharpest either due to long-standing structural factors (as in the case of food and cash crops) or global trends (as in the case of select manufactured products and some agricultural commodities as well).

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