The Hindu Business Line : Choking the inflation fuel

In an obvious political play, the Government has cut the price of diesel and petrol just a few weeks after the Petroleum Minister had firmly ruled out any reduction till such time the international oil prices stabilised at the lower levels, and ironically, on the day prices rose to a one-month high. The Government hopes to send out the message that it is concerned about inflation. The Finance Minister announced soon after the cut that the price reductions may ease inflation somewhat. Expressing more a hope than a belief, Mr P. Chidambaram was careful to remind the nation that the centre of the inflationary pressure lay in domestic essential commodity prices; presumably, then, till such time as such prices move downwards, the consumer should expect only marginal relief from cheaper petrol and diesel..

On the other hand, the oil marketing companies will lose more than consumers will benefit by the Government's move; small wonder that oil scrips fell on the expectation of lower earnings with a rise in under-recoveries. Declining crude oil prices in the last few months had brought restored profit margins for the companies on petrol sales though diesel, kerosene and LPG were still in the negative. Now it will be back to Square One.

Given the complex nature of the inflationary movement in this country, even the relief granted to consumers may be illusory. Inflation, especially in the last four years, a period that coincides with the highest and consistent economic growth in decades, is being stoked by a host of factors other than the traditional suspects. As it is, the Consumer Price Index for Industrial Workers and Rural Labour escalated by more than 7 per cent last month. But alongside, manufacturing prices, as measured in the Wholesale Price Index, have risen from 1.9 per cent in April to 4.4 per cent in October, reflecting a surging trend in consumer spending that continues unabated.

In the current boom, a significant factor stoking the insidious general price rise, but not captured by official indices, is real-estate prices. The demand-supply gaps do not explain the irrationality of housing prices in metros. An irrational real-estate market with overheated prices and the rise in foodgrains prices are encouraging other prices to follow suit. If indeed the policymakers want to control inflation, they should consider the price of roti and makaan, alongside fuel price-cuts.