Inflation at 44-month high of 7.83%

Inflation hit a 44-month high of 7.83% for the week ended May 3. The last time inflation hit such a high was in September 2004, when it touched 7.86%. Despite a high base effect and slew of fiscal and monetary measures initiated recently, inflation accelerated from 7.61% for the week ended April 26. In just two months, the inflation rate rose two percentage points from 5.66% for the week ended February 16 to an uncomfortably high level of 7.83% for the week ended May 3.
The worrying factor this time is the rise in price indices across all categories, including primary articles, manufacturing, and fuel and lubricant, in both year-on-year and week-on-week terms. Moreover, the revised figures for WPI for the week ended March 8, which has been revised to 7.78% from the provisional estimate of 5.92%, the actual inflation for the week ended May 3 may be over 8%. Provisional WPI estimates are revised after two weeks and final figures come after eight weeks.

Unless global crude oil prices decline, India would continue to witness "pretty high inflation" in the fuel group. In the coming days, the possibility of 8% inflation cannot be ruled out if the prices in global market continue to surge. The basket of crude oil that Indian refineries buy rose from $89 per barrel in January 2008 to $120 per barrel as on May 15, 2008. While crude has been hovering above the $120 per barrel mark, the rupee too has declined 6% since April 15, making imports expensive.

A sharp rise in oil prices and the depreciation of the rupee have partly negated government's efforts to control inflation. The limitation of administrative and fiscal measures in controlling a global phenomenon means that inflation might remain above 7 per cent for the time being.