Attributing the persisting high inflation to demand-supply mismatch, the government today said it would have been higher had not the Reserve Bank increased its key policy rates.
"The monetary policy operates with long and variable lags. The transmission of monetary policy action taken in the past is still playing out. However, inflationary pressure have persisted due to a combination of supply and demand factors," Minister of State for Finance Namo Narain Meena said in a written reply to Rajya Sabha.
He said this in reply to a question on whether frequent changes in the interest rates has been effective in reducing inflation during the current fiscal year.
Meena said RBI's monetary tightening have helped to moderate aggregate demand.
"Credit growth also moderated from the peak of 24.2% in end December 2010 to 18.6% in mid-July 2011. In the absence of (monetary) tightening, inflation perhaps would have been higher on account of demand pressures," he said.
The minister said a series of supply shocks, particularly of global commodities, has raised input costs and spiked the headline inflation.
Headline inflation, as measured by the Wholesale Price Index (WPI), stood at 9.44% in June.
The RBI has projected inflation to remain around 9% during the first half of the fiscal and then moderate to 7% by March 2012.
In reply to another question on Dearness Allowance for government employees and pensioners, the minister said an additional instalment of DA has become due with effect from July 1 and will be released in September.
"The All India Consumer Price Index includes a component pertaining to fuel. Dearness Allowance (DA) and Dearness Relief (DR) to central government employees/pensioners is revised twice a year... Based on the accepted formula after Sixth Pay Commission and is normally released in the months of March and September," Meena said.
He said inflation based on the All India Consumer Price Index for Industrial Workers has shown an increase during the first six months of 2011.
He said measures had been taken to contain prices of essential commodities.