Inflation faces two-pronged challenge

Tue, May 13 12:10 AM

It's not India alone where authorities are battling to keep growth on track while reining in price. Governments and policymakers across the world are confronting the same challenge on the back of a sustained spike in global commodity prices and growing fears of a recession in the US. But the big challenge is that India has some extra burden to carry, thanks to global oil prices that touched a high of around $126 a barrel last week.

India's inflation rate has shot up to a three-and-a-half-year peak of 7.61 per cent, driven primarily by higher food prices and some metals but the government has maintained the price line would come down as recent measures start kicking in. China's headline inflation rate accelerated to 8.7 per cent in February, the highest in 11 years.

In the US, the world's largest economy, inflation is forecast to hit 3.5 per cent during 2008. "Inflation (is) to be brought down to around 5.5 per cent in 2008-09 with a preference for bringing it close to 5.0 per cent as soon as possible.

Going forward, the resolve is to condition policy and perceptions for inflation in the range of 4.0-4.5 per cent so that an inflation rate of around 3.0 per cent becomes a medium-term objective," the RBI said in its annual policy statement last month. But the government has been subsidizing oil consumption by pricing petrol, diesel and other crude-based fuels at prices well below global levels.

Meanwhile, money supply growth has also stoked demand.

RECOMMEND THIS STORY