Rising fuel prices will spur inflation: Pronab

The recent decision of the government to deregulate fuel prices would further stoke inflation prompting policy actions to ease pressure on prices, Chief Statistician of India Pronab Sen said today. He also indicated that the Reserve Bank of India (RBI) might raise policy rates like repo and reverse repo in order to contain inflationary expectations.

“You are already in inflationary process. The non-food inflation is accelerating. In that situation, this (fuel price hike) can actually trigger off a stronger inflation process,” he told reporters on the sidelines of a function to mark the Statistics Day.

On June 25, the government had increased the prices of petrol by Rs 3.73 a litre, diesel by Rs 2 a litre and cooking gas by Rs 35 a cylinder. While overall inflation is hovering over 10 per cent, food inflation was 16.9 per cent for the week ended June 12.

On the opinion of many economists that RBI and the finance ministry were behind the curve in tackling inflation, Sen said: “Sooner or later, they (policy measures) are going to come.”

On the possibility of RBI taking steps to tighten monetary supply before its scheduled policy review on July 27, Sen said: “That is up to RBI.”

The market has already factored in a 25 basis point increase in policy rates by the central bank in the near future. However, analysts are divided on the timing of such a rate increase. With most expecting it to come during the monetary policy review, others expecting inter policy action.

Sen, however, pointed out that the need for a huge sum of money by telecom companies for mobile spectrum has sucked out liquidity to a large extent from the system. “Spectrum sale ... (has) sucked out huge liquidity, equivalent to 50 basis points increase in CRR (cash reserve ratio),” he added.