Inflation

Inflation in India

The Situation
According to DSP Merrill Lynch the inflation in India will remain above 7 per cent irrespective of apex bank the Reserve Bank of India's speculation of it remaining about 5.5 to 6 per cent range. In the month of August by the end of first week the wholesale price inflation was 7.96 per cent. This inflation was mere 3.89 per cent during the same period in the previous year.

Household communities are facing increased cost of living mainly due to price rise of essential commodities like diesel, petrol, vegetables and aviation turbine fuel. The WPI rose by 0.3 per cent to 186.6 points due to the impact of price rise of petrol (increased by 2 per cent) and diesel (increased by 5 per cent). The index was 173.4 points a year ago. According to experts this trend will remain at the same level for some more time.

Increase in the international crude oil price making the situation worse. The reason for this sustained price rise is being taken as possible terror threats to oil pipelines in the Middle East, potential disruption in exports from Russia, Nigeria and Venezuela, along with the oil cartel. The rising demand from countries like USA, China, India, etc. is also a prime reason for the increase in the price. This indirectly is affecting the prices of essential commodities due to increased transportation cost. Moreover the strike by the transporters made the situation more precarious.

Rising wholesale inflation may force manufacturers to hike prices, threatening to further choke demand and growth, already at risk from erratic monsoon rains. Industry, emerging from a three-year slowdown, is in a tight spot as rising input costs hurt profit margins but any move to raise retail prices may scare away consumers.
Delayed monsoon has added to the farm-dependent economy's woes as prices of food items have risen sharply. Most analysts have cut their growth expectations for the year to March '05 to 5.5-6.5% from pre-monsoon views...