Inflation at 8.24 percent a problem, says Chidambaram (Round-up)

June 6th, 2008 - 7:47 pm ICT by IANS  

A file-photo of P. Chidambaram

New Delhi, June 6 (IANS) India’s annual inflation rate touched a 45-month high of 8.24 percent for the week ending May 24, prompting austerity measures by the government that include cancellation of visits abroad of some ministers and a ban on official engagements at five-star hotels. “The Indian government, like governments all over the world, is fighting inflation,” said Finance Minister P. Chidambaram Friday as data on wholesale prices showed that the annual inflation has shot up from 8.1 for week ended May 17.

“We have taken fiscal, monetary and administrative measures. We are willing to take more measures,” the finance minister said in a statement after the commerce and industry ministry released fresh data on wholesale prices.

Since the data pertained to the week ended May 24, the inflation rate did not reflect the hike in prices of transport and cooking fuel announced Wednesday. This is expected to add some 100 basis points to the inflation rate.

The central government administered price of petrol was raised by Rs.5 a litre, of diesel by Rs.3 a litre and of cooking gas cylinder by Rs.50 per cylinder to help ease the financial burden on state-run retailers selling these commodities at below cost.

The official data on prices showed that the main cause for the higher inflation rate during the week under review was food articles, notably edible oils, which became dearer by six percent. Non-food articles were dearer by 0.5 percent.

Compared to the week under review, India’s annual inflation rate was last higher for the week ended Aug 28, 2004, when it stood at 8.84 percent. The rate - now at a 45-week high - was 5.15 percent for the corresponding week of 2007.

Also alarmingly, the data further showed that the inflation rate for the week ended March 29 was actually 7.75 percent based on final statistics and not 7.41 percent as reported earlier based on provisional figures.

The unrelenting rise in prices and the steep hike in prices of petroleum fuels prompted Prime Minister Manmohan Singh Thursday to write to all ministers, urging austerity, besides asking states to help by lowering taxes on fuel.

“As we ask people to bear some of the financial burden of our oil imports, it is not only necessary from resource conservation point of view but also as a moral duty to cut out all wasteful expenditure in our own establishments,” he said in the letter to all ministers.

“While instructions will be issued to the cabinet secretary to introduce more rigorous scrutiny of foreign travel proposals, best prudence can be exercised at your own level with regard to both foreign and local travel for you and your officers.”

The finance ministry also issued separate instructions on austerity drive and to cut non-plan expenditure, while some ministers, led by Petroleum Minister Murli Deora and Transport Minister T.R. Baalu, cancelled their foreign trips.

Chidambaram, under pressure to tame prices with Reserve Bank of India Governor Y.V. Reddy, admitted inflation was a problem and a result the relentless rise in global commodity prices, notably crude oil.

“We have not overcome all problems,” he said in a statement, adding: “The United Progressive Alliance (UPA) government is confident that it will, with the understanding and support of the people, overcome the current difficulties.”

Reddy has also said that that the central bank would take measures to curb price rise, which could include a hike in cash reserve ratio for banks as also some adjustments in interest rates to bring down money supply.

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