In the event, in its monetary policy review on January 29, the RBI will have to undertake a balancing act on changes in key rates, taking into account the need to sustain the overall growth momentum while reining in inflation which is currently driven mainly by higher prices of essential commodities such as pulses, sugar, potato, onion and other vegetables.
Having slumped to sub-zero levels and staying in the negative territory for quite some time owing to the slowdown on account of the global financial crisis, the WPI-based inflation started inching up during the second half of 2009 to touch 7.3 per cent in December. During the period, the spurt was mainly owing to food inflation which soared to a 10-year high of close to 20 per cent during the second week of December 2009.
Although food inflation has started dipping from its peak, pegging the overall inflation level for the fiscal year at higher than all other previous official estimates by the government and the Reserve Bank of India (RBI) adds a new disturbing dimension to the crucial issue of price rise. This is because the projection by Mr. Sen indicates the possibility of a fresh bout of food price inflation which, economic analysts fear, may eventually seep into the manufacturing sector.
This adverse impact, according to Chief Statistician of
and Statistics and Programme Implementation Secretary Pronab Sen, would be on account of a likely crop failure in the wake of the erratic monsoon that is likely to show up by the end of March. “Unless something dramatic happens on agri prices, it [overall inflation] would probably be over nine per cent,” he said. India
Source- THE HINDU