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August 8, 2008    

Inflation in India reaches 13-year high

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by Kay Murchie

Annual inflation in India has surpassed the 12% mark despite efforts by the Government to tighten monetary policy.

Increases in the prices of some food articles and manufactured products pushed inflation to 12.01% in the week ending 26 July, up from 11.98% the previous week.

At the end of last month, the Reserve Bank of India, raised its key interest rate 50 basis points to 9%, in a bid to curb runaway inflation. However, this seems to have had little or no impact.

This time last year, inflation was below 5% but economists have warned it could reach 14% later this year before easing in 2009.

Amit Mitra, secretary general of the Federation of Indian Chambers of Commerce and Industry, said the tightening of monetary policy has not helped to bring down inflation.

We are apprehensive if this type of strict monetary policy is continued, added Mr Mitra.

In the short-term, however, prices are expected to continue to rise, but India’s central bank believes the slowing global economy and the fall in the price of a barrel of oil will ultimately have an impact on inflation and it will ease down to 10% by spring 2009.

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