Tuesday, May 15, 2012

Inflation heats up in April'12

The inflation figures for the month of April were announced recently.  Inflation, based on monthly Wholesale Price Index (WPI), stood at 7.2% in April compared to 6.8% in the previous month. Food inflation was also stubborn and stood at 10.4% in April. With inflation showing no signs of cooling down, Reserve Bank of India (RBI) will be relatively cautious in easing the interest rates in the next monetary policy. It may be noted that in the last monetary policy, RBI had surprised the markets with a 50 bps (0.5%) rate cut. And with the industrial production declining in March, there was a consensus of further rate cuts. But considering inflationary pressures, that appears to be a remote possibility now.

It may be noted that food inflation is the main culprit for the rise in overall inflation. And with minimum support prices of crops set to rise further, food inflation may remain in high double digits. Thus, in order to rein in inflation, the problem of food inflation needs to be tackled. And that can be done by improving the back end infrastructure (avoids wastages). Monetary policy tools are ineffective in that regards.

Source: Hindu Business Line
* WPI (Wholesale Price Indiex)

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