Economy

Increased inflation pressure expected on global cues

Our Bureau New Delhi | Updated on February 25, 2011

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Rising global commodity prices, the stimulus-linked “easy money” policy being followed by developed nations and the spiralling crisis in the Arab countries could increase inflationary pressures at home, the Economic Survey warned on Friday.

“The inflationary pressures on the domestic front are likely to be exacerbated by the higher levels of global commodity prices,” said the Survey. It also indicated that political turmoil in West Asia and the “easy money” policy being followed by developed nations could also have a bearing on headline inflation.

The Survey attributed the decline in inflation to the structural and macro-economic steps taken by the Government and the RBI to combat rising food prices. “This year, inflation seems to be driven by demand factors, despite higher supply levels,” the Survey said. Last fiscal, inflation was mostly driven by a deficient monsoon, leading to scarcity of certain food products such as pulses, cereals and sugar.

IMF forecast

The Survey also pointed to the IMF projections of continued pressure on commodity and non-commodity prices. The turmoil in the Arab nations of North Africa and West Asia has already taken global oil prices to a two-year high of over $100 per barrel.

“The ten-year average of headline WPI inflation was around 5.3 per cent from 2000-01 to 2009-10 ... In the current financial year (2010-11), the average inflation (April-December) of 9.4 per cent was also much higher than the decadal rate,” the Survey noted.

On a global comparison, the Survey notes that India's food inflation was among the lowest with respect to emerging economies in calendar year 2010. The Survey also blamed currency competition for creating inflationary pressure in emerging economies. Talking about the issue, it said each country's central bank is taking steps according to its own views. “This has given rise to destabilising currency competitions and may be a factor behind the recent increase in inflation in emerging economies,” the Survey said.

Published on February 25, 2011

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