Inflation – Not Coming Down

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It seems good news for the common masses are still far away as the inflation data are showing a consistent higher level trend in the recent time. The government’s claim that Inflation will come down by 6.5% by March 2011 has proved false. 

Releasing the “Economic Outlook 2010-11?, Dr C Rangarajan had said, “to sustain a growth rate of 9 per cent, focus was required on containing inflation, improving farm productivity and closing the large physical infrastructure deficit, especially in the power sector.” But against all the hopes, inflation is maintaining itself on the higher levels hanging around 9%.

 

But with the rising petrol prices, it will be difficult to achieve the desired target. The rise in the food price index is attributed to an increase in the prices of sugar, oil seeds and meat. Sugar prices reached a 30-year high level in past. Further, India will continue to be affected by global prices of important food items and there are indications of another price rise in the global food markets.

Although, the sectors like industry, which had achieved a growth of 9.3 per cent in 2009-10, is projected to grow at a rate of 9.7 per cent in 2010-11 and 10.3 per cent in the following year. The good growth of this sector is helping a little bit in bringing down the overall rate of inflation.

But the recent hike by The Reserve Bank of India in the repo rate by 50 basis points to take its level at 7.25 per cent, will further affect the inflation in the negative side. It means RBI will lend money at higher level to the banks resulting higher housing, auto, and consumer loans.

Normally, this step will help in controlling inflation by affecting demand, is not taken as best step as better way is to increase supply by increasing production. But it seems that RBI has taken this step keeping in mind the long term inflation control goals. It can affect GDP growth rate negatively.

It seems that common people have to bear the short term pain for may be the long term better effects. But it can’t be calculated accurately as there are many factors which affect inflation.

 

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