Inflation slips to 7.94% on higher base

Inflation dipped marginally from a four-year high of 7.96 per cent to 7.94 per cent in the week ending August 14. It gave some breathing space to the government, which is battling a rise in prices of essential commodities on account of the truckers' strike.

Prices of fruits, vegetables, wheat and manufactured products rose during the week in question, however, inflation fell on account of slightly higher price levels in the corresponding week last year.

In an attempt to rein in inflation, the government had slashed Customs and excise duties on petrol, diesel, kerosene and liquid petroleum gas (LPG) on August 18. Steel manufacturers were also persuaded to cut prices as part of efforts to control costs in the economy.

The impact of the duty cuts in the energy sector and price cuts in steel will be seen in the inflation figures to be released next week. However, the impact will be moderate because of the low base in the corresponding week last year. The downturn in inflation due to the high base effect will start in mid-September. Last year, the inflation level had started rising after the middle of September and continued to climb till February 2004.

Economists are, however, vary of the move to control prices. "There is no reason to be overly concerned about the prevailing 8 per cent inflation level in the economy. Price controls are not required till inflation reaches the threshold of hyper inflation, around 10 per cent to 12 per cent," said Arjun Sengupta, chairman, CDHR.

The government should look at higher interest rates and an appreciating rupee to counter the inflationary pressure on the economy, he said.

The inflation based on the wholesale price index (WPI) was 4.07 per cent in the corresponding week last year. The inflation level based on the final WPI for the week ended June 19 was 6.62 per cent as against the provisional level of 5.87 per cent announced earlier.