Inflation At 13-Month High of 9.8 percent; Big Challenge for RBI


New Delhi: Driven by expensive food and manufactured items, inflation climbed to 13-month high of 9.78 percent in August suggesting that frequent interest hikes by Reserve Bank since March 2010 has proved ineffective to contain price rise. RBI, which is scheduled to review interest rate policy again on Friday, faces a dilemma of sorts as the Indian economy is confronted with high inflation and sliding growth. It raised interest rates 11 times in last 18 months. Inflation, based on the Wholesale Price Index, went up from 9.22 percent in July. The near double-digit inflation in August is highest since July 2010, when it was 9.98 percent. "It (inflation) is perilously close to double digit. RBI is also watching the situation like the government, and collectively it would be possible for us to tackle the problem," Finance Minister Pranab Mukherjee said. Chief Economic Advisor in the Finance Ministry Kaushik Basu said "there is no black and white answer and RBI will have to balance between controlling inflation and dampening growth." Inflation for June has been revised upwards to 9.51 percent from the provisional estimate of 9.44 percent, according to official data released today. In August food items on annual basis became expensive by 9.62 percent, driven mainly by rising prices of onion, fruits and potato. Prices of manufactured products, which have a weight of around 65 percent in the WPI basket, went up by 7.79 percent during the month.
Source: PTI