Inflation rises to over 9%, RBI may hike interest rates again

LD INFLATION
New Delhi, June 14 (PTI) Driven by rising prices of
fruits, milk, petrol and manufactured goods, headline
inflation surged past the 9 per cent mark in May, raising the
expectations of another hike in key policy rates by the
Reserve Bank later this week.
Inflation rose to 9.06 per cent in May from 8.66 per cent
in April, prompting Prime Minister's Economic Advisory Council
(PMEAC) Chairman C Rangarajan to describe the trend as
"upsetting" and pitch for tightening of the monetary policy by
the RBI to cool rising prices.
The central bank, which has raised key interest rates
nine times since March, 2010, to check rising prices, is
slated to conduct a mid-quarterly review of the monetary
policy on Thursday. The RBI would try to balance the need to
tame inflation and promote industrial growth, which has
slipped to 6.3 per cent in April from 13.1 per cent a year
ago.
"I think the inflation numbers are in a sense
upsetting... We need to address the issue of inflation even
more strongly. We need to use more monetary and fiscal policy
to contain inflation," C Rangarajan told reporters here.
According to Wholesale Price Index (WPI) data released by
the government today, several essential items, including rice,
fruits, petrol, edible oils, cotton textiles and iron and
steel products, became more expensive during May in comparison
to April.
Inflation, according to Planning Commission Deputy
Chairman Montek Singh Ahluwalia, "is a problem (but) we still
remain hopeful... It has gone up, which is not unexpected,
because the preliminary indications said it would go up."
Meanwhile, overall inflation for March has been revised
upward to 9.68 per cent from the provisional 9.04 per cent.
"We are concerned about the situation... This level of
inflation is causing a lot of problems," Department of
Economic Affairs Secretary R Gopalan said.
In May, prices of manufactured products, which have a
weight of around 65 per cent in the Wholesale Price Index
(WPI) basket, went up by 7.27 per cent year-on-year in May.
Manufacturing inflation has been steadily rising since
February this year, when it crossed the 6 per cent mark. It
stood at 6.18 per cent in April.
Cotton textiles were up 28.99 per cent and iron by 14.54
per cent. Man-made textiles also became costlier by almost 11
per cent.
Inflation in the fuel and power segment, which has a
weight of almost 15 per cent in the WPI basket, stood at 12.32
per cent year-on-year.
The rate hike of over Rs 5 in petrol prices by
state-owned old marketing companies in mid-May had a visible
impact, with prices of the item going up by 27.31 per cent on
an annual basis.
During the month under review, primary articles went up
by 11.30 per cent on an annual basis. Primary articles have a
share of around 20 per cent in the overall WPI basket.
Within the primary articles segment, food articles became
8.37 per cent more expensive, while prices of non-food primary
articles went up by 22.35 per cent.
Fruits were up by almost 32 per cent, while milk and
eggs, meat and fish became over 6 per cent more expensive.
Experts believe the June 16 RBI mid-quarterly review will
see key policy rates going up by 25 basis points. PTI PPB
KAP