Quick Edit| High inflation is back

Quick Edit| High inflation is back

The sheer pace at which inflation has accelerated since September is worrisome. It was widely expected that inflation would pick up as the economy recovered and the base effect wore off. The poor monsoon added a supply shock, which has ensured that food prices are galloping at a rate of nearly 20% a year.

Yet, the November inflation data comes as a surprise. It shows that wholesale prices are 4.78% above their level a year ago, and inflation is at its highest level in 10 months.

All eyes are now on the Reserve Bank of India (RBI) to tame this runaway horse. But given that high food prices are a major factor behind this price instability, monetary policy can be a blunt whip.

The big challenge right now is for the government to use its food stocks and selective imports to increase supplies and bring down prices. A good rabi crop could help as well.

Our guess is that inflation will spread beyond food, as excess capacity gets used up, wage demands grow and companies rediscover pricing power. It is to be seen what was the exception: the double-digit inflation of 2008 or near-deflation of 2009?