Zeenews Bureau
New Delhi, June 21: Powered by the fuel price rise, annual inflation shot-through-the-roof on Friday jumping to 13-year high levels and stood at 11.05% for the week ending June 07. A visibly concerned FM said, “These are difficult times. Government is aware of people’s difficulties, but fuel price hike was unavoidable.”
Chidambaram revealed that he had warned the Union Cabinet on the effect fuel prise rise would have on inflation but it could not be avoided. He further stressed the need to take stronger steps in fiscal and monetary issues.
On the other hand, the CPM, expectedly, slammed the government for not taking adequate steps, as suggested by them to curb the run-away inflation.
The rise in petrol, diesel and cooking gas prices announced by the government on June 4 put the pressure on price line pushing the inflation by week ending June 7, up from 8.75 percent in the preceding week.
Within minutes of the release of the government data, sensitive BSE index of stock markets tanked about 350 points, reflecting the nervousness of the investors about the efficacy of the measures being taken by the Finance Ministry and the Reserve Bank of India.
Besides fuel prices, rise in prices of food products particularly edible oil and manufactured goods added to the pressure on price line and woes of the government.
Previous high inflation of 11.11 percent was witnessed on May 6, 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 percent," Principal Economist of rating agency CRISIL D K Joshi said and added that unless fuel prices are controlled the prices would be a major challenge.
Finance Minister Chidmabaram had also expected the inflation soaring further as he had said, "Inflation is high. RBI must take steps and it has taken."
This was the first statement from the Finance Minister after the Reserve Bank hiked its short-term lending rate by 0.25 percent to 8 percent putting pressure on interest rates.
The previous high in the UPA regime was 8.33 percent, as per the provisional figure for the week ended August 28, 2004.
India’s chief statistician, Pronab Sen said on Tuesday that headline inflation would hit double digits sometime in the coming weeks and was likely to hover around 8 to 9 percent before declining in the last quarter of 2008.
The wholesale price index is more closely watched than the consumer price index (CPI) because it includes more products and is also published weekly.