Fiscal measures, oil keep prices in check

ECONOMIC SURVEY 2004-05/ INFLATION

The bout of inflation in the first half of 2004-05 was caused by a rise in crude oil prices and deficient rainfall.

As a result of quick monetary and fiscal measures taken by the Reserve Bank of India and the government, coupled with a slight easing of global petroleum prices, inflation has been on a decline in the second half of the fiscal year. Inflation was at 5.01 per cent on February 5 compared with 6.1 per cent a year ago, the Economic Survey said today.

The 52-week average inflation at 6.4 per cent on February 5, 2005, was, however, higher than 5.5 per cent registered a year ago, the survey said.

It said there was a "sudden bout of inflation" in the first half of 2004-05 caused by a combination of factors like a sharp rise in petroleum prices, deficient rainfall-induced inflationary expectations and monetary over-hang from accretion of forex reserves.

Both manufactured products and primary articles recorded lower year on year inflation at 4.5 per cent and 1.6 per cent, respectively, compared with last year's 6.7 per cent and 3.4 per cent, respectively.

But there was acceleration in inflation for fuel, power, light and lubricant group, from 7.7 per cent to 10 per cent this year owing to a hardening of international prices of oil and minerals.

"The high inflation is not of the demand-pull variety, but basically of a cost-push type, driven by a hardening of international prices of oil, minerals and metals," the survey said.

Certain measures initiated by the government in the second quarter of 2004-05, including reduction of excise and Customs duty on petroleum products, reduction of Customs duty on non-alloy steel and reduction of tariff values of many vegetable oils coupled with a hiked cash reserve ratio (CRR) by the RBI and a fall in international crude oil prices helped to rein in inflation, the survey said.