Inflation trebles to 4.78%; RBI may squeeze money supply

The monthly data, released by the government for the second time, shows that potato prices have surged by a whopping 141% over the past eight months, followed by sugar (37%), pulses (32%) and onion prices have zoomed 20%

India's inflation more than trebled to 4.78% during November on account of rising prices of food items like potato, sugar and pulses, and may prompt the central bank to squeeze money supply to tame price rise, reports PTI.

According to the monthly inflation data released on Monday, the wholesale price-based inflation jumped to nearly 5% from 1.34% in October.

Attributing rising prices to supply-side constraints, Suresh Tendulkar, former chairman of the Prime Minister's Economic Advisory Council (PMEAC), said the Reserve Bank of India (RBI) could take steps to withdraw liquidity to tame rising prices. The apex bank is slated to announce review of its annual credit policy next month.

Food inflation, according to the weekly data announced earlier, had shot up by 19.04% during November, recording the sharpest increase in the decade.

The monthly data, which was released by the government for the second time, shows that potato prices have surged by a whopping 141% during the past eight months, followed by sugar (37%), pulses (32%) and onion prices have zoomed 20%. On the other hand, minerals, edible oils and leather products have become cheaper since March 2009.

The RBI in its monetary policy review in October had revised the inflation forecast to 6.5% by March-end from 5% earlier.

International raw material prices are rising so domestic prices are also seeing a movement upward, Mr Tendulkar said, adding that the government needs to manage supply shortages.

"The RBI may withdraw the liquidity in terms of statutory liquidity ratio (SLR) movement but I don't see any rate changes being done, not till the next quarterly review in January," he said.

The central bank has been increasing money supply for industry to tide over the global financial crisis.

The rising prices are an issue of concern for the government as a worried Congress president Sonia Gandhi had earlier said during the week that “price rise of essential commodities continues to be a matter of highest concern to us.”

Among manufactured products, textiles rose by 1.4%, paper and paper products by 0.1%, while chemical and chemical product prices increased by 0.1%.

Commenting on the price rise, Yes Bank's chief economist Suhubhda Rao said, "A sharper rise in manufacturing clearly indicates that the pricing power is gradually returning as the broad group within manufacturing products have registered month-on-month increase in the index numbers."

Ms Rao added that firming inflation will be on the RBI’s radar where the CRR could be hiked in December by 25-50 basis points.

 

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