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High commodity prices main reason for inflation: Govt

Last Updated: Tuesday, August 23, 2011 - 20:06

New Delhi: The government Tuesday said high commodity prices and demand pressure in manufactured items have led to inflationary pressure, but added that the rate of price rise is likely to moderate to 6-7 percent by the end of this fiscal.
"The surge in headline inflation, despite an overall moderation is food inflation, was the combination of two factors -- an unanticipated increase in oil and commodity prices... and demand pressures reflected in significant increase in inflation in non-food manufactured products," Minister of State for Finance Nano Narain Meena said in a written reply to the Rajya Sabha.
Headline inflation, measured by Wholesale Price Index (WPI), has been above 9 percent since December 2010. Food inflation remained in double-digit for most of 2010, before falling below the 10 percent mark in March this year.
Inflation of manufactured items, which have a share of over 65 percent in the WPI basket, has been above 7 percent since March this year.
Meena said the government and the RBI has taken a number of steps to control inflationary pressure.
The RBI has hiked interest rates 11 times since March 2010 and "related measures to moderate demand to levels consistent with the capacity of the economy to maintain its growth without provoking price rise."
"In the absence of tightening, inflation perhaps would have been higher on account of demand pressures," he said.
Regarding steps by the government, he mentioned reduction of import duty to zero on rice, wheat, pulses, edible oils and onion, ban on export of edible oils and pulses, suspension of futures trading in rice, urad and tur and extension of stock limit orders in case of pulses and rice.
Meena also said that the government has reduced import duty on skimmed milk powder, petrol and diesel and custom duty on crude oil.
In reply to another question, he said that headline inflation is expected to fall to 6-7 percent by March 2012.
"Overall WPI headline inflation is expected to fall to ... 6 to 7 percent," the minister said.
He said the expected slowdown in economic growth will also act to ease inflationary pressure in the second half of the fiscal.
"Growth is expected to decelerate... to around 8 percent in 2011-12, which should contribute to some easing of demand- side inflationary pressure, particularly in the second half, as the full impact of monetary tightening is realised," Meena said.


First Published: Tuesday, August 23, 2011 - 20:06
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