Have inflationary pressures subsided in India? In recent months, inflation fell somewhat from the highs witnessed last year. But it rose marginally to 5.6% for the week ended 10 January, up from 5.24% for the week before it. This rise has been played down by government economists, who argue that it is a “blip” caused by the truckers’ strike. They expect inflation to fall further to the 3-4% level by the end of this fiscal year.
That is an optimistic view of the prevailing situation. The prices to watch are those of food articles. These continue to rise. Prices of food articles rose by 11.63% on a year-on- year basis during this period. It would be appropriate to see the Consumer Price Index (CPI) for a realistic view of things. In fact, it would not be surprising if CPI for this period ends up showing a significant increase.
The loose monetary policy being pursued now may come back to haunt policymakers in mid-2009, when commodity prices are expected to harden. In addition, any volatility in foodgrain output is sure to add to these problems.