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Business News/ Economy / Inflation relief a mixed bag as prices stay high
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Inflation relief a mixed bag as prices stay high

A raft of measures by the government over the past month to cool prices has turned out to be a mixed bag so far. While fuel prices have dropped significantly, food prices appeared to be more stubborn, still hovering above where they were a month ago, a Mint analysis showed.

The impact of the excise duty cuts on petrol and diesel could be up to 50 basis points.  (Photo: Reuters)Premium
The impact of the excise duty cuts on petrol and diesel could be up to 50 basis points.  (Photo: Reuters)

A raft of measures by the government over the past month to cool prices has turned out to be a mixed bag so far. While fuel prices have dropped significantly, food prices appeared to be more stubborn, still hovering above where they were a month ago, a Mint analysis showed.

The two most crucial announcements were a ban on wheat exports, which invited criticism from the world amid a global shortage, and excise duty reductions on petrol and diesel by 8 per litre and 6 litre.

Still in red 
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Still in red 

Not only were the excise duty cuts passed on to the consumers, but the prices have also been on hold, even as crude oil prices are on the rise again. As a result, petrol and diesel prices are 7-8% lower from a month ago. The ban on wheat exports, however, did not have the desired impact.

While wheat prices softened in the past few days, they are still about 3% higher than a month ago, data from the consumer affairs department showed.

According to Barclays, a 10% rise in domestic prices of the foodgrain would typically add an estimated 27 basis points to retail inflation.

Similarly, sugar, soya and sunflower oil prices have eased as export curbs and duty cuts took effect. However, their prices remain higher than a month ago.

“The impact of these measures on food prices will be seen with a lag," said Yuvika Singhal, an economist at QuantEco. “Even though any likely correction in prices will be partial this month, these steps will be helpful in at least keeping the prices on hold."

A drop in fuel prices may offer relief, but oil marketing companies may soon be forced to hike them as the long freeze of 137 days ahead of state elections held in March and again for two months since April has widened the gap between cost and selling price.

As of 2 June, oil marketing companies were losing 17.1 a litre on petrol and 20.4 on diesel, news agency PTI reported.

Two other important announcements, subsidies on fertilizers and cooking gas, are targeted measures meant only for beneficiaries.

The impact of these measures on inflation is difficult to estimate, economists said, though fertilizer subsidy could ease the input price pressures on agricultural products, the benefit of which may take a few months to show up.

The impact of the excise duty cuts on petrol and diesel could be up to 50 basis points, while retail inflation has shot up by 172 basis points between February and April.

Retail inflation is expected to reach its highest under the Narendra Modi government at 6.7% this fiscal, Mint earlier reported

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Updated: 06 Jun 2022, 05:06 AM IST
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