Inflation nears 10% to touch 16-mth high

Rate Hike Looks Certain To Control Prices

New Delhi: Overall inflation spiked to a 16-month high level at 9.89% in February to sight the double-digit mark on the back of rising food prices and an increase in the excise duty on motor fuels announced in the Budget. The latest figure marked a 1.34 percentagepoints rise over 8.56% in January and gave rise to expectations of the RBI signalling higher interest rates in its policy review in April. 

    But the government played down the rise in wholesale price based-index, with finance minister Pranab Mukherjee saying pressure on food prices was easing. "I am afraid that we will have to deal with it (high inflation) for some more time. Inflationary pressure on food items have started coming down,'' he told reporters. 
    Government's chief economic adviser Kaushik Basu, too, expected another month of same level of inflation "because the base effect is going to be very strong... After that inflation should begin to die down... The food index in January-February has virtually been constant...in fact fallen a little bit so the food price index is driven by base effect." 
    Food inflation was pegged at 17.81% towards the end of February. Sugar prices rose by 55.47% in February year-onyear, potatoes by 30% and pulses by 35.58%. 
    Global financial services firms such as Goldman Sachs, Citi and Nomura saw inflation topping 10% in March as the full impact of the excise hike on motor fuels and partial rollback of stimulus is felt. 
    Goldman expects RBI to begin withdrawing liquidity through the cash reserve ratio of banks — the amount that banks keep with the central bank — and to hike rates by 50 basis points by the April 20 policy meeting. The RBI in its quarterly monetary review had asked banks to keep aside more cash with it by raising CRR by 75 basis points to 5.75%. 
    In February, the index for fuels has shot up by over 10% y-o-y in the latest WPI, mainly on account of higher prices of petrol and diesel. While petrol became dearer by 11.73%, diesel rose 8.85%.