INFLATION TOUCHED 13 YEAR HIGH AT 11.05%

By: Bharat Ratna

• Inflation rises to 11.05% from its previous rate 8.75% which is 13 year high after the fuel prices hike

• Stocks Markets down drastically, SENSEX down by 3.42%, NSE down by 3.48%

• RBI may take more measures to tame inflation and further tighten the monetary policy, possibly by increasing REPO rates

• Finance Minister Mr P Chidambaram said, Fuel hike led to double digit inflation
  
  

Inflation has been zoomed to 11.05% for the week ended June 7, 2008, from its previous rate of 8.75 and it was 13 year high when comparing with previous rates. Previous high inflation of 11.11 per cent was witnessed on May 6, 1995.

India calculates inflation on the wholesale price of a basket of 435 commodities, which means actual prices paid by the consumer are much higher.

Govt. of India release said , 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)”during the week.

Earlier the Finance Ministry had already cautioned the cabinet about the effect of raising fuel prices on India's inflation. Finance Minister P. Chidambaram said here on Friday soon after inflation reached 11.05 percent, "The increase in petroleum product prices has contributed 94 percent to the inflation recorded." He also hinted at stronger monetary measures in future.

Globally also, Inflation is on the rise and it has also surged to double digits in other countries, including Indonesia, Vietnam, Sri Lanka and Pakistan as oil, food and other commodity prices soar.

Industry bodies said on Friday 20 June 2008, the double digit inflation is a threat to India's plans to sustain high economic growth and the price rise will moderate only if global oil prices remain stable.

"Inflation at double digits is a threat to growth prospects of the country, and poses a huge challenge to the government," Confederation of Indian Industry (CII) said in a statement.

Mr DK Joshi, Principal Economist of CRISIL rating Agency said, "The high inflation may force the RBI to increase the repo rate (short term lending rate to banks) by up to half a per cent."

The short-term lending rate (repo rate) is currently ruling at 8.0 per cent and this may be increased to 8.25 per cent even before the July policy announcement.

Mr. Abheek Barua, Chief Economist, HDFC Bank sair, “ It is quite possible that RBI may increase the repo rate by a quarter per cent before July policy review”.

Double digit inflation figures tumbled the stock market and 30-share Sensex, which had shed 610 points in the past two trading sessions, plunged further by 516.70 points at 14,571.29 (down by 3.42%). The key-index dipped to a low of 14,159.27 and touched a high of 15,202.01 points during the day.

Oil & Gas was the worst hit sector with its index closing lower by 5.03 percent. Banks, Tech, Metal and Realty were the other prominent counters which lost in the range of 3-4 percent. Reliance Communications took a heavy beating and ended with a loss of 6.65 percent, followed market leader Reliance Industries which fell by 6.61 percent.

India's truckers have threatened a nationwide strike from July 2, a protest that would pull four million vehicles off the road, disrupting commercial shipments.

Analysts said the government had little left in its fiscal arsenal to fight inflation -- it has already banned exports of staple foods like rice to boost supplies and check inflation. They also said India is a victim of global forces.