Reserve Bank of India Governor Raghuram Rajan on Wednesday expressed concern over rising inflation and claimed that it was no more restricted to food items.

According to him, inflation “has surfaced again” and has percolated beyond food items and in services and other non-food sectors, including manufacturing.

“Inflation is concentrated not just in food but also in services and increasingly ....the non food manufacturing items (are) again picking up inflation. So even when people say food, it is actually not just food inflation. It is much more wide-spread than that,” Rajan told during his speech at the CII Leadership Summit here.

India, he claimed, was one of the few large countries that was suffering from high consumer price inflation, even when its economy was “relatively weak”.

Gold purchases

A primary indication that inflation was hurting the general public can be gauged from the increasing gold sales trends. People have been shying away from financial investments and we're investing in gold in the hope of higher returns.

“I think one of the indicators that they are tired of inflation is the fact that gold purchases have been creeping up. That’s one place where they are, or have been, more confident because financial investments with high levels of interest have been unattractive,” said Rajan.

Referring to the need to maintain a balance between demand and supply, in order to control inflation, Rajan said that it was necessary to control demand in the short run. Focus would also be in ensuring that supply is not killed in the bid to reduce demand.

The RBI Governor pointed out that the weak state of economy, recent stability in the rupee and good kharif and rabi crops will generate disinflationary forces.

The currency was at much stable levels as compared to what it was in June.

Despite talk of a Fed tapering it is unlike that the currency will experience similar fluctuations, he added.

(This article was published on December 11, 2013)
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