Rising fuel prices push inflation to 6.09%

The rise in inflation over the last quarter has pushed the real rate of interest on the benchmark 7.40 per cent 2012 government bonds into negative territory.

With the annual point-to-point wholesale price index (WPI)-based inflation having crossed 6 per cent for the week ended January 3, the trend is likely to be exacerbated.

Increasing fuel prices have pushed inflation to the almost 35-week high of 6.09 per cent. The rising trend in price levels has put the government on high alert to ensure that inflation does not dampen the 'feel good factor' in the economy in the run up to the polls.

The high-powered price monitoring board under the Cabinet secretary met this week to monitor the situation on the price front. Of particular concern is the possible rise in the prices of onion, which gave the BJP a jolt in several assembly elections in 1999.

Government sources said a six per cent inflation rate would imply that the real rate of returns on small savings instruments would be only about 2.5 per cent for the financial year.

The effective yield on the benchmark government bonds had already dipped below six some time ago.

However, economists said while the economy was overheating to an extent, the annual inflation figure would be lesser at around 5.1 to 5.3 per cent. The recently announced reduction in tariffs would also lead to reduction in the general inflation level, they added.

WPI-based inflation was 5.75 per cent during the previous week and 3.78 per cent in the corresponding week last year. The highest WPI-based inflation level so far recorded in this financial year was 6.47 per cent for the week ended April 12.

The inflation based on the final index for the week ended November 8 was revised to 5.18 per cent as against 4.88 per cent reported on the basis of the provisional index.

At the disaggregated level, the index for all major groups rose during the week. The index for primary articles rose by 0.7 per cent on the account of rising prices of both food and non-food articles.

Items whose prices rose sharply included tea (11 per cent), marine fish (4 per cent) and poultry chicken (3 per cent).

Prices of condiments and spices and fruits and vegetables rose 2 per cent during the week.

Soyabean was 6 per cent costlier, gingelly seed 5 per cent, groundnut seed and raw silk 3 per cent each, niger seed and raw cotton 2 per cent each.

The index for fuel, power, light and lubricants soared 1.5 per cent due to a 6 per cent hike in high-speed diesel oil, 5 per cent in light diesel oil prices, 4 per cent hike in naphtha prices and 3 per cent in petrol prices during the week.

The index of heavy-weighted manufactured products' group rose marginally 0.1 per cent on account of higher prices of food products, textiles, rubber and plastic products, non-metallic mineral products, basic metals and machinery.

The index of food products rose 1 per cent due to a 7 per cent price hike in oil cakes, a 4 per cent hike in solvent extracted groundnut oil and unrefined oil and 2 per cent hikes in prices of gingelly oil, atta and groundnut oil.

Other items whose prices altered sharply include cotton knitted garments, up 5 per cent, lead ingots, up 6 per cent, aluminium ingots, up 4 per cent, and rubber insulated cables, up 6 per cent.

Prices of bidi however fell 7 per cent and of epoxy resins 40 per cent during the week.