06-21-2008, 08:15 PM
<!--QuoteBegin-->QUOTE<!--QuoteEBegin--><b>Promise: 2-digit growth Reality: 2-digit inflation </b>
Pioneer News Service | New Delhi
Prices at 13-yr high at 11.05%; don't expect relief
The inflation spiked to 11.05 per cent on Friday, touching a 13-year high. There are serious apprehensions that it may stay at this level for months even if crude prices ease up, since edible oil has flared up on destruction of crops in the US due to flooding and storm.Â
<b>Growth could take a big hit. The last time when inflation reared its head so monstrously, it took three years for revival of the economy. The previous high inflation of 11.11 per cent was witnessed on May 6, 1995</b>.
Though the Government tried to blame the inflation on rising international crude prices and their impact on the domestic economy, <b>the fact remained that the petro price hike was expected to add little more than 0.5 per cent to the price index</b>. When the prices of petroleum products were raised in the first week of June, the inflation hovered only around 8 per cent. Besides fuel prices, the rise in prices of food products -- particularly edible oil and manufactured goods -- added to the pressure and woes of the Government. The latest development is likely to put more pressure on the Government, which is already facing heat from the Left parties on the issue of going ahead with the India-US nuclear agreement.
<b>There was almost an all-round increase in edible oil prices, led by sunflower oil (which became costlier by 10 per cent), followed by groundnut and cotton seed oil (3 per cent), imported edible oil, vanaspati and soyabean oil (2 per cent each). </b>The edible oil crisis has cropped up because of destruction of crops in the US due to floods and storms and is not likely to get over any time soon.
The runaway rise of inflation is a big setback for the Government, which had the dream of double-digit growth for the country. The issue of double-digit growth is also a lesson for the Finance Ministry, which compromised on controlling fiscal deficit for populist measures which ate into the resources. There is little hope that the inflation would come down in near future. The fundamentals of macro economics have been seriously derailed and it could take long to undo the damage. Meanwhile, the inevitable upward tempering with the repo rate and the cash reserve ration by the Reserve Bank of India-related rise of interest by commercial banks, both private and public, could starve the industry of resources for carrying out the capex. There are serious fears that the growth could come down to around 7 per cent and stay there for a long time.
The monetary policy measures could also lead to increased interest rates for cars, homes and consumer finance. "The high inflation may force the RBI to increase the repo rate (short-term lending rate to banks) by up to 0.5 per cent," principal economist of rating agency CRISIL D K Joshi told PTI, adding that prices would be a major challenge unless fuel prices were controlled.
Though the market had braced up for double-digit inflation, it fell like ninepins when news tricked in that the number stood above 11 per cent. Some of the biggest scripts, like Reliance Industry, lost over six per cent in a day and many others hit three- to five-year low. The index toughed the all-time low this year and bears took a tight grip of the market. With selling coming on high volumes, the days ahead look critical for the market as experts see no convincing support at the lower levels.
During the week under consideration, the Fuel Index rose by 7.8 per cent on account of higher prices of diesel (21 per cent), LPG (20 per cent), naptha (17 per cent), furnace oil (15 per cent), ATF (14 per cent), petrol (11 per cent), high speed diesel (10 per cent) and bitumen (7 per cent), a government release said. Though the food index declined by 1.1 per cent due to lower prices of fruits, vegetables and coarse grains, prices of fish, spices, maize and gram moved up by about 1 per cent, it added. According to the index, iron and steel sectors witnessed a hefty price increase during the week.
<b>While the price of steel soared by 14 per cent, pig and foundry iron became costlier by 11 per cent. The price of bar and rounds rose by 9 per cent, followed by steel sheets (4 per cent) and pipes and tubes (2 per cent). The index of the textile products, according to the data, also grew by 0.1 per cent on account of higher prices of cloth, sacking bags and woollens</b>.
Among the manufactured products category, <b>the prices of ceiling fans during the week went up by 6 per cent.</b> As regards chemical products, the index rose by 0.2 per cent due to rising prices of all kinds of acids, caustic soda and blank cassettes. However, in the non-metallic minerals products category, the prices of cement declined marginally.
Attributing the surge in inflation to the rise in administered prices of petroleum products, Union Finance Minister P Chidambaram hinted at more steps to curb the demand and improve supply side to control the price rise. "These are difficult times. The Government is aware of the difficulties... Naturally, we will have to look at stronger measures on demand and monetary sides...We will try to address to the best of our abilities the demand and monetary sides and try to improve supply side also," Chidambaram said.
He, however, refused to divulge what steps the Government or the RBI intended to take.
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Pioneer News Service | New Delhi
Prices at 13-yr high at 11.05%; don't expect relief
The inflation spiked to 11.05 per cent on Friday, touching a 13-year high. There are serious apprehensions that it may stay at this level for months even if crude prices ease up, since edible oil has flared up on destruction of crops in the US due to flooding and storm.Â
<b>Growth could take a big hit. The last time when inflation reared its head so monstrously, it took three years for revival of the economy. The previous high inflation of 11.11 per cent was witnessed on May 6, 1995</b>.
Though the Government tried to blame the inflation on rising international crude prices and their impact on the domestic economy, <b>the fact remained that the petro price hike was expected to add little more than 0.5 per cent to the price index</b>. When the prices of petroleum products were raised in the first week of June, the inflation hovered only around 8 per cent. Besides fuel prices, the rise in prices of food products -- particularly edible oil and manufactured goods -- added to the pressure and woes of the Government. The latest development is likely to put more pressure on the Government, which is already facing heat from the Left parties on the issue of going ahead with the India-US nuclear agreement.
<b>There was almost an all-round increase in edible oil prices, led by sunflower oil (which became costlier by 10 per cent), followed by groundnut and cotton seed oil (3 per cent), imported edible oil, vanaspati and soyabean oil (2 per cent each). </b>The edible oil crisis has cropped up because of destruction of crops in the US due to floods and storms and is not likely to get over any time soon.
The runaway rise of inflation is a big setback for the Government, which had the dream of double-digit growth for the country. The issue of double-digit growth is also a lesson for the Finance Ministry, which compromised on controlling fiscal deficit for populist measures which ate into the resources. There is little hope that the inflation would come down in near future. The fundamentals of macro economics have been seriously derailed and it could take long to undo the damage. Meanwhile, the inevitable upward tempering with the repo rate and the cash reserve ration by the Reserve Bank of India-related rise of interest by commercial banks, both private and public, could starve the industry of resources for carrying out the capex. There are serious fears that the growth could come down to around 7 per cent and stay there for a long time.
The monetary policy measures could also lead to increased interest rates for cars, homes and consumer finance. "The high inflation may force the RBI to increase the repo rate (short-term lending rate to banks) by up to 0.5 per cent," principal economist of rating agency CRISIL D K Joshi told PTI, adding that prices would be a major challenge unless fuel prices were controlled.
Though the market had braced up for double-digit inflation, it fell like ninepins when news tricked in that the number stood above 11 per cent. Some of the biggest scripts, like Reliance Industry, lost over six per cent in a day and many others hit three- to five-year low. The index toughed the all-time low this year and bears took a tight grip of the market. With selling coming on high volumes, the days ahead look critical for the market as experts see no convincing support at the lower levels.
During the week under consideration, the Fuel Index rose by 7.8 per cent on account of higher prices of diesel (21 per cent), LPG (20 per cent), naptha (17 per cent), furnace oil (15 per cent), ATF (14 per cent), petrol (11 per cent), high speed diesel (10 per cent) and bitumen (7 per cent), a government release said. Though the food index declined by 1.1 per cent due to lower prices of fruits, vegetables and coarse grains, prices of fish, spices, maize and gram moved up by about 1 per cent, it added. According to the index, iron and steel sectors witnessed a hefty price increase during the week.
<b>While the price of steel soared by 14 per cent, pig and foundry iron became costlier by 11 per cent. The price of bar and rounds rose by 9 per cent, followed by steel sheets (4 per cent) and pipes and tubes (2 per cent). The index of the textile products, according to the data, also grew by 0.1 per cent on account of higher prices of cloth, sacking bags and woollens</b>.
Among the manufactured products category, <b>the prices of ceiling fans during the week went up by 6 per cent.</b> As regards chemical products, the index rose by 0.2 per cent due to rising prices of all kinds of acids, caustic soda and blank cassettes. However, in the non-metallic minerals products category, the prices of cement declined marginally.
Attributing the surge in inflation to the rise in administered prices of petroleum products, Union Finance Minister P Chidambaram hinted at more steps to curb the demand and improve supply side to control the price rise. "These are difficult times. The Government is aware of the difficulties... Naturally, we will have to look at stronger measures on demand and monetary sides...We will try to address to the best of our abilities the demand and monetary sides and try to improve supply side also," Chidambaram said.
He, however, refused to divulge what steps the Government or the RBI intended to take.
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