New Delhi, April 12: Food inflation continued its upward movement, standing at 17.70 per cent for the week ended March 27, primarily due to rising prices of milk and pulses which increases pressure on the Reserve Bank of India (RBI) to raise interest rates in its annual monetary policy on April 20.
Food inflation in the previous week stood at 16.35 per cent. The overall inflation, which includes variation in prices of food and non-food items, was 9.89 per cent in February. Continuously increase in the food prices is the biggest problem for people who are below poverty line.
Inflation on food items are like a tax on food for people who lives below poverty line. On an annual basis, pulses became dearer by 32.60 per cent, milk by 21.12 per cent, fruits 14.95 and wheat by 13.34 per cent. Last month RBI rose short-term lending and borrowing (repo and the reverse repo) rates by 25 basis points to five per cent and 3.5 per cent, respectively to check inflation from spreading to non-food items.
Goldman Sachs also raised its forecast for India’s inflation in 2010-11 expecting higher consumer prices as well as commodities prices such as oil, steel and iron ore. Goldman Sachs expects average headline inflation in the south Asian nation at 7.5 per cent, from its earlier estimate of 6 per cent. The annual inflation rate rose to 9.89 per cent in February, the highest since October 2008.
Goldman Sachs said that the RBI may increase the interest rates up to 300bps to tighten its monetary policy and to tighten the liquidity in the market.
Monetary policy can also be tighten by increasing the CRR which means amount of money which commercial banks has to park with RBI. This directly controls the liquidity in the market.
I can say that if the inflation increased in the same way continuously then it will be the biggest threat to the economic growth of India. We can control the inflation by tightening the monetary policy.
—Agencies