Nothing much has changed on inflation front

For more than two years inflation data have rarely provided any reasons to cheer. And that trend continues.

Consumer price inflation for October accelerated to 10.09 per cent, the highest in eight months, from 9.84 per cent in the previous month, according to government data released on Tuesday.

Consumer inflation was pushed higher by food prices. Food inflation in October quickened to 12.56 per cent from 11.44 per cent in September. Food inflation is now close to the all-time high of more than 13 per cent in December 2012. Onion prices, for instance, touched Rs 100 a kg in Delhi last month. This is more than what a litre of petrol costs.


Inflation's all-pervasive quality makes it difficult to ignore. It has not only been eating into our budgets but also eroding the value of our incomes. So, even with inflation-adjusted wage increases, we are most likely earning less money now than we did three years ago.

The government's response to controlling inflation has been staid and unimaginative. It has oscillated between denial and reluctant acceptance.

The Reserve Bank of India (RBI) has increased interest rates to tame inflation. The RBI's repurchase rate, its main lending rate, is at 7.75 per cent. This is higher than most big emerging economies - Russia and Brazil are the only two big emerging economies with higher interest rates than India, at 8.25 per cent and 9.50 per cent, respectively.

The rate hikes, however, have not managed to fully control inflation. It is apparent that monetary policy alone cannot address supply-side constraints that have fuelled inflation.

Finance ministry officials say inflation is worrisome but will ease after an expected bumper kharif crop. The RBI agrees with this view but with many riders. The central bank, in its monetary policy review note last month, said that, while a good kharif crop could partly mitigate the pressure on food prices, the possibility of global oil price spikes and adverse currency movements could fuel inflation.

This essentially means that another interest rate revision seems almost inevitable.