New Delhi: Fuelled by the sharp increase in fuel and cooking gas prices, the inflation shot to a thirteen year high of over 11%.
Coupled with increase in petrol product prices, the food prices put the pressure on inflation that touched 11.05% for the week ending 7 June, a development that could cause a big worry for the government.
Capturing the Central Government’s decision to hike petrol prices by Rs5 a litre, diesel by Rs3 a litre and domestic cooking gas by Rs50 a cylinder led to the spurt in inflation, management of which is proving a major challenge for both the Finance Ministry and the Reserve Bank.
Inflation was 8.75% for the week ended 31 May mainly on account of rising food, vegetable and fruit prices.
Within a minute of release of the government data on price movement in the country, the sensitive Bombay Stock Exchange benchmark Sensex dipped by over 200 points, reflecting the concern of the investing community.
Previous high inflation of 11.11% was witnessed on 6 May, 1995.
Leading economists and analysts predicted that price pressures would prompt the Reserve Bank of India to further tighten the monetary policy, possibly by making short term lending to banks costlier.
This could further lead to increase in interest rates for cars, homes and consumer finance, economists said and feared that present situation could also force a hike in lending rates for the industry and many banks are already contemplating hiking the prime lending rate.
“The high inflation may force the RBI to increase the repo rate (short term lending rate to banks) by up to half a per cent,” Principal Economist of rating agency CRISIL D K Joshi told PTI and added that unless fuel prices are controlled the prices would be a major challenge.
During the week under consideration, the Fuel Index rose by 7.8% on account of “higher prices of diesel (21%), LPG (20%), Naptha (17%) furnace oil (15%), ATF (14%), petrol (11%), high speed diesel (10%) and bitumen (7%), a government release said.
Though food index declined by 1.1% due to lower prices of fruits and vegetables and coarse grains, prices of fish, spices, maize and gram moved up by about 1%, it said.
There was almost an all round increase in edible oil prices led by sunflower oil that became costlier by 10%, followed by groundnut and cotton seed oil (3%), imported edible oil, vanaspati and soyabean oil by two per cent each.