This story is from January 19, 2007

Inflation at 2-year high, breaches 6%

TNN / Jan 19, 2007, 23:57 IST

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Inflation, measured by the wholesale price index, rose to a two-year high to touch 6.12% during the week-ended January 6.

NEW DELHI: Inflation, measured by the wholesale price index, rose to a two-year high to touch 6.12% during the week-ended January 6, due to costlier food and energy.
The rise in WPI, the highest since 2004-end, was also on account of a low base in first week of January 2006, when inflation was estimated at 3.86%.
Economists said even if the index had remained at the previous week's level of 208.1, inflation would have touched 6%, compared to Reserve Bank of India's forecast of 5-5.5% for 2006-07.
But the prognosis does not appear too good, with economists predicting that inflation will continue to rise 6% for a few more weeks and could touch 6.5% next month.

While FM P Chidambaram said government was worried and was watching the situation closely, he conceded that items of daily use like urad, tea, tomatoes, coconut and arhar dal were the real worries.
But he seems to be already under attack from political parties. BJP called it"mishandling of the economy" and CPM, while calling for a ban on futures trading in foodgrain, also sought a reduction in petrol and diesel prices.

Oil minister Murli Deora, however, ruled out an immediate reduction in petrol and diesel prices, saying crude prices have to fall below $50 a barrel to make it prudent for the government to cut rates at the retail level.
Hinting at some possible steps in the coming days, Congress spokesperson Abhishek Singhvi said,"Give the government a few more days."
Economists feared the latest inflation data along with sustained boom in the economy offered RBI the perfect backdrop for raising interest rates when it reviews the monetary and credit policy at the end of the month.
How much of an impact a possible rate hike would have on consumers can only be gauged once RBI annouces its next move.
Besides, any tinkering with the rates could also be negated by a possible cut in statutory liquidity ratio for banks, which will release money into the economy and act as a counterfoil for any liquidity squeeze.
RBI raised its main lending rate, called repo, four times last year to 7.25% to slow down credit growth and check prices. But with limited impact, it was forced to raise CRR to squeeze out liquidity from the system.
"Inflation is a monetary phenomenon and is also driven by supply-side constraints. The ministry of finance is in touch with RBI and agriculture ministry, and we will do whatever is needed," Chidambaram told reporters.
While fast pace of credit growth to companies is not of much concern, officials said there was a need to moderate prices in the real estate sector, where cost of houses are at least three times the level three years ago.

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