Economic Note on Inflation

While the index of inflation for primary articles declined by 0 .7% on a week to week basis, I feel this decline is nothing to rejoice about. If we look at the components of primary articles decline in inflation has been primarily due to the seasonal effect on production of fruits & vegetables. The Non-Food articles have shown an increase and so has been the case with minerals. The disturbing part in the non food articles is the rise in price of fodder which directly impacts the farmer and the livestock. The rise in the index of minerals and fuels indicates to the rising input costs of many industries which finally would reflect in higher prices of final products. The consumer confidence index released today has shown a downturn & is at its lowest level in last one year. The bad part about this decline in index has been that  the major down turn has come in from Tier II & Tier III cities of the country & is primarily due to the concerns of inflation & spending.

In India the annual food price inflation is still in the range of 20%. It is high time for the Central Bank to take charge of the liquidity situation in the economy to ensure an even flow of money into the system. It may be too early to talk about the withdrawal of liquidity by the Central Bank but surely we can expect a quicker monetary tightening in view of the higher asset prices & rising inflation. I would like to see the RBI giving some definitive signals that would warn the banks against excessive lending to non productive sectors. On the other hand The Government must look into long and short term measures to improve supply of food items.