Double-digit inflation looms over economy

Brace yourself for an even higher spell of high prices. Inflation is set to surge to worrisome double-digit levels as costlier diesel and cooking fuel cascade through the broader economy, making most goods and services dearer. The hike in diesel prices alone will add 0.30 percentage points to the
overall inflation rate that was 9.06% in May. Fuel, power and lighting carry a weight of 14.91% in the wholesale price index (WPI) - India's most followed inflation index.

Besides, the knock on effects of costlier fuel likely to add at least another one percentage points to inflation.

"Due to the hike, inflation could be close to 10% by July," said C Rangarajan, chairman of Prime Minister's Economic Advisory Council.

The government on Friday raised diesel, kerosene and cooking gas prices by Rs 3 a litre, Rs 2 a litre and Rs 50 a cylinder - a move that is bound to have a domino effect on most expenses, from transport to food.

These steep hikes, which comes barely a month after a steep Rs 5 a litre hike in petrol prices, will pinch household budgets - already pummelled by soaring prices of food and other essential commodities.

This is reminiscent of June 2008, when the government had increased petrol, diesel and LPG prices by Rs 5, Rs 3 a litre and Rs 50 a cylinder respectively. Inflation rate had then shot by nearly three percentage points from 8.11% to 11.08% as secondary effects of the costlier fuel cut through the economy.

A lot will still depend on an adequate monsoon. The Met department has forecast a normal monsoon, crucial for the summer-sown crop that accounts for more than half of India's annual food output.

Even though abundant rainfall will shore up food supplies, costlier diesel would imply that cost of ferrying from farms to retail vendors and outlets will get that much costlier.

According to India Foundation of Transport Research and Training, freight rates on the Delhi-Mumbai route would increased by about 4% as transporters jack up prices after the increase in diesel prices.

Inflation of non-food articles has been in the range of 20-25% over the past many weeks and higher diesel prices will only knock up prices of most of these goods.

Source- hindustan times
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