March inflation surges to 8.98%

Inflation based on wholesale price index accelerated to 8.98% in March, above the government and RBI estimates, as fuel and manufactured goods prices rose. The provisional estimates released were higher than the previous month’s 8.31%. It also showed that the government’s estimate of 7.5% was off the mark and was also higher than the RBI’s year-end projection of 8%. That policymakers failed to assess the inflation dynamics can be gauged from the fact that RBI had projected March-end inflation at 5.5% last April, while the government was trying to paint an even more favourable picture. The government has sought to justify high inflation on the grounds that a rapid rise in prices accompanies high growth. At its present level, among developing countries, inflation in India is next only to Russia. Of course, there is Pakistan that can boast of beating India on this count. If trends from recent months are anything to go by, the provisional estimates would be revised upwards. For instance, for January 2011, the government revised the number of 9.35% from 8.23% estimated earlier. Besides, economists and government officials said the inflation number did not present the true picture in the absence of oil marketing companies being permitted to raise prices of cooking and auto fuels. With oil prices remaining high and high growth stoking inflation in an economy where the manufacturing sector is facing capacity constraints, economists predict that high inflation is here to stay. Earlier this week, the International Monetary Fund too warned of high inflation and said India was seeing historically high inflation rates. With inflation remaining high, there is every chance that RBI will increase interest rates when it unveils its annual policy statement next month. According to the data released by the commerce & industry ministry on Friday, primary articles, led by food, saw a moderation to 12.96% in March from 22.16% a year ago. Within this, inflation rate for food articles was estimated at 9.47%, compared to 20.65% in March 2010. There was, however, an acceleration in the non-food group from 20.43% to 25.88% as prices of fibres shot up by nearly 84%.