Inflation hits record high in India, all eyes on central bank
The wholesale price index (WPI)-based inflation rate has hit a three-year high of seven percent for the week ended March 22 as against 6.68 percent in the week before and 6.54 percent a year ago, raising fears that India might be heading for an economic slowdown unless the government takes immediate steps to curb the rise in prices.
According to the latest government data, prices of fruits and vegetable, pulses, cereals, eggs, meat and fish have gone up, while condiments and spices were cheaper.
The index for minerals group jumped 38.2 percent on week, pulled up by a 46 percent increase in iron ore and a 57 percent rise in steel ingot prices, the government data said.
Among Fuel, Power, Light and Lubricants category, prices of furnace oil increased by two percent.
In the manufactured items category, sunflower oil shot up by nine percent, vanaspati by four percent while butter, mustard oil, sugar and groundnut oil became expensive by one percent each.
At the same time, prices of ghee and coconut oil decreased by 1 percent each.
Elsewhere, electrode prices jumped up by 14 percent, steel ingots (plain carbon) by 57 percent, forging by 22 percent, cast iron casting by four percent and zinc by three percent. Car chassis (assembled) moved down by one percent while lead and zinc ingots were down by three percent.
For the Indian consumer, inflation spells bad news as not only the prices of vegetables, cereals and various manufactured goods would continue to rise but also getting loans would become tougher if India's central bank, the Reserve Bank of India (RBI) decides to tighten monetary policy to rein in inflation.
According to market analysts, the markets were gripped with concerns on Friday that following the rise in inflation, further stringent monetary measures, including a hike in Cash Reserve Ratio (CRR), could be on anvil. A hike in CRR, which is the rate of amount all the commercial banks need to maintain with the central bank, will affect the market as it sucks out liquidity in banking system, the analysts said.
High inflation could prompt the RBI to take tight monetary measures, like raising short-term lending and borrowing rates and squeezing money supply in its annual credit policy scheduled to be announced on April 29, the analysts said.
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