A PRICE DAMPER ON GROWTH

Rising inflation is tricky in many ways.

- M.G. Arun

When food and fuel prices rise beyond a particular threshold, it creates a public outcry and puts governments on the back foot. Inflation in commodity prices like steel and cement hurts industries that use them as inputs, but the manufacturers of those commodities gain. In the current context, farmers, who might have benefited from the high food prices, are instead in trouble because of soaring input costs. Wary that inflation may surge past its targeted ceiling of 6 per cent, the RBI (Reserve Bank of India) has decided not to cut interest rates, which has consequences for overall economic growth.

High fuel costs and rising prices of manufactured goods took India’s wholesale price index (WPI) inflation to a record high of 12.94 per cent on a year-on-year basis in May. That high figure is also on account of what economists call the ‘low base effect’ (this number is in comparison to the same time last year, when WPI inflation was at (-)3.37 per cent).