Inflation nears 8%

Driven by higher prices of oil and oil products, wholesale price index-based inflation surged to a four-year high of 7.96 per cent for the week ended August 7. The inflation figure for the week takes into account the oil price hike effective from August 1.

The government, however, said there was no need to panic. "The recent cut in Customs and excise duties on oil products should take some pressure off inflation, and prices will start decelerating," Chief Economic Adviser Ashok Lahiri told reporters today.

However, economists said the impact of the duty cuts would be marginal. "We expect the duty cuts to have a first round impact of only about 0.3 percentage points on inflation," said Subir Gokarn, Chief Economist, Crisil.

Finance Minster, P Chidambaram had yesterday said the government would consider additional measures, if required, to tackle inflation. He also said the government would ensure that there was adequate stock of essential commodities.

Meanwhile, the Reserve Bank of India (RBI) is understood to be raising its outlook on inflation upwards for the current financial year to 6-6.5 per cent. The revised inflation estimate will be released in forthcoming annual report, which is be released soon.

In the monetary and credit policy for 2004-05, released in May 2004, the RBI estimated annual inflation based on the wholesale price index at 5 per cent.

According to sources, there is a view emerging in the RBI that the oil price shock may linger for quite sometime and even set a new base for price expectations. Based on this reasoning, the year-end inflation forecast is being revised upwards.

The inflation was 7.61 per cent in the previous week and 3.89 per cent in the corresponding week last year. For the week ended June 12, the government revised the inflation to 6.58 per cent as compared with the provisional figure of 5.89 per cent. The final WPI stood corrected at 184.6 points during the second week of June against 183.4 points.

During the week in question, the index for fuel, power, lights and lubricants went up by 1.5 per cent. Prices of aviation turbine fuel shot up by 11 per cent, diesel by 5 per cent and petrol by 2 per cent. Naphtha prices also rose by 5 per cent during the week and of light speed diesel oil by 9 per cent.

The index for primary articles rose marginally by 0.1 per cent because of surging prices of food articles. The food articles index was up 0.2 per cent owing to costlier poultry chicken was up 3 per cent, eggs and masur, up 2 per cent each and fruits & vegetables, moong and bajra up 1 per cent each.

The index of non-food articles fell by 0.2 per cent because of a 6 per cent fall in the prices of raw wool, 3 per cent fall in raw jute prices and 2 per cent reduction in castor seed prices. The prices of raw cotton and gingelly seed fell by 1 per cent each during the week.

Prices of raw silk increased by 6 per cent, fodder and copra by 2 per cent each and tobacco, cotton seed, rape and mustard seed and groundnut seed by 1 per cent each.

The heavy-weighted manufactured products group index was up marginally by 0.1 per cent even as food products became cheaper, while prices of tobacco, textiles, wood, paper, chemicals, basic metals and machinery went up.