Inflation in India escalated to 11.91 per cent, a 13 year high during the week ended in July 5.The Whole Price Index based inflation was as low as 4.46 per cent in January and slowly increased to 5.27 per cent in February, 7.25 per cent in March and 7.41 per cent in April. The marginal rise from the 11.89 per cent earlier was due to higher prices of tea, fruits, maize, imported edible oil, iron and steel items, petroleum products(ATF). Alongside with inflation in the vegetables, pulses, meat and fish categories have shown a decline.
Inflation targeting in India has pushed the Reserve Bank of India to further hike short-term interest rates as well as statutory deposit requirements when it reviews the credit policy later this month. Last month, the central bank has raised short-term lending rates for banks- repo rates by 0.75 per cent in two installments, while also increasing mandatory cash deposits of banks by 0.50 per cent in two phases to suck out excess liquidity. RBI is now slated to announce quarterly review of credit policy on July 29, when it may announce further measures to absorb money supply.
India Inflation (CPI MoM)
With the global surge in International Crude Oil prices, commodity and food prices experts and economists believe that the inflation will continue to rise for some more time and will start moderating only after six months.
As oil plays a critical role in determining inflation and economic growth, it is essential to think of a long-term process where the rate tightening does have a definite impact of slowing down the economy. On the whole, the RBI and the Indian Government has a difficult task on its hands when it comes to announce the interest rate policy.