New Delhi: The common man will get no respite from rising prices for another six months, with the government today saying that inflation, currently hovering above 9%, will continue to remain high till December.
“We expect moderation in inflation only in the last months of this year. Headline WPI monthly inflation is likely to remain relatively ‘sticky’ and persistently high between August-December, 2011...,” a finance ministry note said.
Inflation stood at 9.44% in June, much above the Reserve Bank’s comfort level of 5-6%.
The current inflation, the note added, is being mainly driven by “seasonal effects and upward movement in crude oil, manufactured and administered fuel prices...”
The government, it said, “is working closely together with the RBI to take all appropriate steps to reduce inflation to a more comfortable level. While there is no clearcut definition of tolerance for inflation, we would like to bring headline inflation down to 6-6.5% in the near term.”
The RBI has increased key interest rates ten times since March, 2010, to check rising prices and it is widely expected to announce another rate hike at its quarterly monetary policy review on 26 July.
The ministry expects inflation to moderate to 6-7% by March, 2012.
On the concerns about overheating of the economy, the paper said, “We are in a tightening mode on both fiscal and monetary front, that should reduce whatever elements of demand side pressure there may be.”
Moreover, it said, easing of supply constraints would help reduce inflationary pressure.
Justifying the recent hike in diesel, kerosene and LPG prices, it said failure to do so would have led to widening of fiscal deficit and further fuelling of inflation.
“Our preferred approach is to increase prices only gradually, as you have seen during the past, while protecting the poor through direct income raising support such as MNREGA and more targeted subsidies,” it said.
In its annual monetary policy for 2011-12, the Reserve bank, too, had said that inflation would remain elevated for some time and average 9% during the first half of the fiscal before moderating to around 6% by March, 2012.
The finance ministry note further said that the reasons for persisting inflation have changed.
“Initially, food inflation was our main concern... However, the sources of inflation have now switched to non-food; much of it is due to imported global commodity inflation,” it said.
Food inflation, which was in double digits for most of 2010, had started moderating since March-April this year. It stood at 8.31% for the week ended 2 July.
“International prices of oil, food, metals and fibres have increased by 24% in the last one year. As a result, our manufacturing inflation has started to pick up from about 5.5% in 2010 to above 6% since February, 2011,” the paper said.
Manufacturing inflation was over 7% in June.