Pranab for vigil on inflation spread

Finance Minister Pranab Mukherjee today admitted that food and energy prices were exerting pressure and called for maintaining a vigil to prevent spread of this inflation to other items. He said inflation had re-emerged as a major concern in the past few months, particularly in emerging economies.

“For us in India, the major pressure at present are emanating from prices of food and energy sectors. The risk of its spilling into the core sector requires constant monitoring, timely and proactive response,” Mukherjee said at the first meeting of the inter-ministerial group formed last month after onion prices skyrocketed.

The finance minister’s remark comes as food inflation rose over two percentage points, even when overall inflation came down marginally to 8.23 per cent in January. The government expects inflation to come down to seven per cent by the end of this financial year.

Analysts believe that food prices showed sharper fall late January, and hence it could not reflect in overall inflation numbers for the whole of the month. The February figures are expected to mirror the fall in food prices.

“After exhibiting a slow but steady decline in the current financial year, food inflation has been unexpectedly high in recent weeks, driven by surging prices of vegetables, fruits, dairy, oilseeds and spices. WPI inflation has been relatively stable for cereals (wheat, rice) and pulses. It is extremely important that we are able to stabilise food prices at a reasonable level,” Mukherjee said.

It was stressed in the meeting that policy makers should not react on every spike in inflation numbers and rather study systemic flaws to take advance corrective measures.

Issues like link between futures market and price rise, market margins, agricultural productivity issues and the role of state governments and district administrations in price management were also briefly touched upon.

Highlighting on the importance of accurate inflation data, the finance minister said the new wholesale price inflation with a base year of 2004-05 as well as wider and latest items compared to the old series would address some of the concerns.

He said the new retail price index for rural and urban as well as the whole nation would reflect more accurate picture of price behaviour of various goods and services consumed by people.

However, even then the finance minister called for reviewing the present system of monitoring wholesale and retail prices of essential commodities.