Non-traded items add to inflation pressure: Gokarn

Despite a fall in global commodity prices, headline inflation has been sticky due to supply bottlenecks and strong domestic consumption demand.

There is an apparent divergence emerging in the link between commodity prices and headline inflation in India, said Subir Gokarn, deputy governor of the Reserve Bank of India (RBI), on Monday.

“One very critical source is non-traded commodities, particularly food ... where a lot of headline inflation is received here,” said Gokarn, while addressing a panel discussion here.

Though inflation may not be linked to global commodity prices, he said, there is a significant element of commodity shock.

The Wholesale Price Index (WPI), India’s inflation indicator, has eased to below seven per cent since the start of the calendar year. However, primary articles’ inflation increased from 2.76 per cent in January to 9.62 per cent in March, mainly on account of a rise in prices of milk, pulses and vegetables that are non-tradable commodities.

Gokarn said there were no short-term solutions to the supply-side problems because the goods are non-tradeable.

“It is not easy to import milk. It is very expensive. Even pulses are not easily traded,” he said.

The International Monetary Fund (IMF) in its regional economic outlook for the Asia-Pacific countries has projected the growth rate in India at 6.9 per cent in 2012 and increase to around 7.3 per cent in the following year.

Anoop Singh, Director-Asia and Pacific department at the IMF, said the key challenge to achieve higher growth is to create fiscal space that allows more investments in infrastructure.

Overheating pressures may develop in Asian countries, he said, if commodity prices become more volatile and domestic consumption demand stays strong.

“In many countries, including India, inflation has remained sticky and the concern is to make sure inflation returns to the target ranges that countries have,” added Singh.