<p>The latest inflation data is cause for worry as it reflects a broad-based rise in prices at a time of shrinking or stagnant incomes for most individuals and households. It should be a matter of concern for the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) which had earlier this month underplayed inflation in its policy statement. Retail inflation, measured by the consumer price index, was at a six-month-high of 6.3 per cent in May, well above the tolerance level of the RBI’s inflation targeting regime. While core inflation rose to a seven-month high of 6.6 per cent, food price and fuel price components also registered increases, and the latter was as high as 11.6 per cent. The inflation rate based on the wholesale price index increased to 12.94 per cent. The trend is likely to continue, and so the matter can no longer be ignored. </p>.<p>Quite a few events and situations have contributed to the rise in prices. The disruption in the supply chain caused by the lockdowns and the resulting constraints on economic activities was one reason. The inflation levels were subdued during the interregnum between the first and second waves of the pandemic but started rising when lockdowns were imposed again. But it may not be right to assume that the prices will go down again when the economy starts opening up. There are other factors that have come into play now. Fuel and commodity prices have been rising steadily, and they have a cascading effect. Commodity prices are in a global bull cycle. Since production was widely hit in the past many months, inventories have depleted and that has created pricing pressures. The stimulus packages which were announced worldwide created an environment conducive to inflation everywhere.</p>.<p><strong>Also read: <a href="https://www.deccanherald.com/business/business-news/four-key-questions-on-rising-global-inflation-998684.html" target="_blank">Four key questions on rising global inflation</a></strong></p>.<p>The RBI’s estimate of inflation at 5.1 per cent for the fiscal year is bound to be exceeded. Since its attention is now on supporting growth, which has taken a big beating, it is unlikely to increase interest rates now. This is right policy now, but a stage may come when the central bank will have to think of balancing the present policy with measures to contain inflation. The MPC’s main mandate is inflation control. Failure to take timely action may lead to a further fall in real incomes and savings rate and may adversely affect the growth of consumer demand when the economy has to take off. The government has a lot to do. Since the rise in fuel prices is a major cause of inflation, it can go in for a reduction in excise duties on petrol and diesel. It should take steps to reduce prices of materials like steel and cement. Of course, it must first admit that there is a problem with prices that needs to be tackled. </p>
<p>The latest inflation data is cause for worry as it reflects a broad-based rise in prices at a time of shrinking or stagnant incomes for most individuals and households. It should be a matter of concern for the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) which had earlier this month underplayed inflation in its policy statement. Retail inflation, measured by the consumer price index, was at a six-month-high of 6.3 per cent in May, well above the tolerance level of the RBI’s inflation targeting regime. While core inflation rose to a seven-month high of 6.6 per cent, food price and fuel price components also registered increases, and the latter was as high as 11.6 per cent. The inflation rate based on the wholesale price index increased to 12.94 per cent. The trend is likely to continue, and so the matter can no longer be ignored. </p>.<p>Quite a few events and situations have contributed to the rise in prices. The disruption in the supply chain caused by the lockdowns and the resulting constraints on economic activities was one reason. The inflation levels were subdued during the interregnum between the first and second waves of the pandemic but started rising when lockdowns were imposed again. But it may not be right to assume that the prices will go down again when the economy starts opening up. There are other factors that have come into play now. Fuel and commodity prices have been rising steadily, and they have a cascading effect. Commodity prices are in a global bull cycle. Since production was widely hit in the past many months, inventories have depleted and that has created pricing pressures. The stimulus packages which were announced worldwide created an environment conducive to inflation everywhere.</p>.<p><strong>Also read: <a href="https://www.deccanherald.com/business/business-news/four-key-questions-on-rising-global-inflation-998684.html" target="_blank">Four key questions on rising global inflation</a></strong></p>.<p>The RBI’s estimate of inflation at 5.1 per cent for the fiscal year is bound to be exceeded. Since its attention is now on supporting growth, which has taken a big beating, it is unlikely to increase interest rates now. This is right policy now, but a stage may come when the central bank will have to think of balancing the present policy with measures to contain inflation. The MPC’s main mandate is inflation control. Failure to take timely action may lead to a further fall in real incomes and savings rate and may adversely affect the growth of consumer demand when the economy has to take off. The government has a lot to do. Since the rise in fuel prices is a major cause of inflation, it can go in for a reduction in excise duties on petrol and diesel. It should take steps to reduce prices of materials like steel and cement. Of course, it must first admit that there is a problem with prices that needs to be tackled. </p>