There are, indeed, some indications that this is happening in the weekly numbers for the Wholesale Price Index that were released last Friday for the week ending April 26. While the overall inflation rate was 7.61 per cent, more or less at par with the previous week's 7.58 per cent, the pattern of price movements across various commodities appears to be changing. For one, the prices of most food items are holding relatively steady or even falling on a week-to-week basis. Among the latter are some important oilseeds, a reversal that can probably be attributed to the lowering of import duties, which does act as a credible threat to domestic markets. The one exception in this category is tea, which saw its price increase by as much as 11 per cent over the previous week. The other strong drivers of the inflation rate in recent weeks, iron and steel, are also showing signs of moderation. Steel ingots, for example, saw prices decline by 13 per cent over the previous week, suggesting that the moral suasion that the government has been using on the industry seems to be working.
If these patterns constitute evidence that the inflationary pressure is easing, then the best course of action for the government would be to desist from attempting more and more "administrative" solutions to the problem, such as prevailing on key sectors to hold or roll back their prices and, most significantly, tampering with futures markets, as it has done recently. It is easy to understand the government's dilemma in these circumstances. The movie-goer knows that the higher power, in the form of the scriptwriter, will come to the rescue; the citizen-consumer-voter has no such assurance and will inevitably blame the government if things get worse. Rarely can a politician take the same position that the doctor in the movie does. Unfortunately, the readily available options before the government fall mostly into that dreaded category of "administrative" solutions, which can do a lot of harm to the ability of markets to function efficiently, and which could then exacerbate the problem in the longer run as producers find it difficult to read signals emanating from market prices. Maintaining the status quo, however difficult it may be in such situations, is also a legitimate policy option. Even though the weekly inflation may be discomforting, there are enough signs of a short-term reversal to justify it now, even while addressing some difficult long-term issues.
The most important thing that the government can do, as soon as inflation shows moderation, is to increase the prices of all petroleum products. The government has been chary of this, but with crude oil prices doubling in less than a year-and-a-half, its do-nothing policy is no longer sustainable; there has to be action. The danger is of course that, after much heaving and puffing, the government will muster up the courage to raise prices only half a notch. That will be a pretence of action, and no solution at all.
