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New Delhi, April 4 Inflation galloped to an over three-year high of 7 per cent, buttressing fears that the RBI could hike rates in April instead of leaving them unchanged, denting economic growth prospects further.

With iron and steel, edible oils, vegetables, milk and dairy products showing no signs of a let up in prices, annual inflation flared up by over 30 basis points for the week ended March 22, driven by an across-the-board rise in prices, according to the latest Wholesale Price Index-based inflation data released by the Government.

Fears of a slowdown in economic growth following the release of the rise in inflation numbers brought the Sensex down by over 480 points. Prices of edible oil and oilseeds in the futures market fell sharply during the day amid concerns that the Centre may ban their trading, while Government bond prices nosedived after the data came in.

Continuing its battle against inflation, the Centre on Friday withdrew incentives on export of Basmati rice to check prices of the premium food grain. The Cabinet Committee on Prices is slated to meet again “shortly” to take fresh stock of the situation.

Inflation, which stood at 6.54 per cent in the same period one year ago, had last hit seven per cent on December 4, 2004. During the latest reported week, wholesale prices in the iron and steel category were up 27 per cent on a year-on-year basis, while edible oils shot up 21 per cent. Among essential items, cereal prices jumped 6 per cent, vegetable prices were up 11 per cent while milk prices spurted 10 per cent in the wholesale markets. Dairy products were up 9 per cent, while cement prices were up 5 per cent during the latest reported week. In the fuels category, both mineral oil and coal prices were up 9 per cent on an annual basis.

Responding to the latest data, the Finance Secretary, Mr D. Subbarao, told reporters that “it (inflation) is a matter of concern of course. We will continuously review the situation. We are not insensitive to the issue”.

The rise came despite stiff monetary tightening which has pushed interest rates to a six-year high, denting industrial growth, and was way above the RBI’s tolerance level of five per cent.

Mr D.K. Joshi, Principal Economist, Crisil, told Business Line that “the shock element on the inflation numbers released today came from the metallic and minerals group. The sharp rise in iron ore prices and also to some extent the coal prices has pushed inflation beyond expectations. It is also being reflected in steel prices as iron ore is an input. Another pressure point in the numbers is edible oils. I expect the edible oil prices to cool off in the coming days as duties have been slashed.”

While forecasting some softening of inflation in the coming weeks, Mr Joshi said that it was unlikely to come within the Government’s comfort zone of 4-5 per cent.

“That will be a distant dream… Raising interest rates will not be a good policy option as inflation is not demand driven,” he added. The RBI’s annual credit policy is slated for April 29.

More Stories on : Economy | Oilseeds & Edible Oil | Steel

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