The Hindu Business Line : Inflation spurts to 6.12%

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New Delhi Jan.19 High inflation has come back to haunt the Manmohan Singh Government with the wholesale price index (WPI)-based annual inflation rate spurting by over half a percentage point to touch 6.12 per cent, the highest level in two years, for the week ended January 6. Inflation has been creeping up in recent times with the last reported figure being 5.58 per cent for the week ended December 30, 2006.

What is causing concern to the Government is that the impact of inflation is widespread, covering food items such as urad, arhar, tea, coconut and tomatoes and also manufactured products such as steel and edible oils. However, energy costs, which have been generally high last year, have not contributed significantly to the overall increase, robbing the Government of the excuse to blame it on high oil prices.

The `base effect'

Conceding the point about inflation bothering the Government, the Finance Minister, Mr P. Chidambaram, told reporters that the "spurt" in WPI, a closely monitored index, from 5.58 to 6.12 per cent was "indeed a matter of concern".

He said that this "rather sudden rise" was largely attributable to what is known as "base effect". He drew attention to the point that the index for all commodities for the week December 30, 2006, to January 6, 2007, moved only from 208.1 to 208.2, a movement of 0.1. However, in the corresponding week of the previous year, the index had declined by 0.9. Thus, the year-on-year inflation rate reflected a spurt, he said.

"If you go back and analyse from September 2006, the index numbers for these groups have remained range-bound with considerable decline in fuel, power and lubricants and small rise in manufactured products," Mr Chidambaram said.

Stating that inflation was a monetary phenomenon and was influenced by the supply side, Mr Chidambaram said that the Finance Ministry was in touch with the Agriculture Ministry and the Reserve Bank and added that necessary steps would be taken to tame the rising trend. Experts, therefore, anticipate some monetary intervention by the RBI this month-end since the quarterly review of monetary and credit policy is due on January 31.

Official data showed that the jump in inflation during the latest reported week was mainly on account of an increase in prices of both food and non-food items coming under the Primary Articles' group and the prices of heavyweight Manufactured Products' group items including basic metals, alloys and metal products and machinery and machine tools.

The Primary Articles group, which has a weightage of 22.03 on the WPI, went up 9.28 per cent on a year-on-year basis during the latest week. The spurt in Primary Articles group prices was driven mainly by food articles (weightage of 15.40), which witnessed a price increase of 9.6 per cent during the week. Non-food articles (weightage of 6.14) also went up 8.18 per cent.