Inflation jumps to 7.3% in Dec

Inflation jumps to 7.3% in Dec
Hindustan Times, January 15, 2010, Page 1

New Delhi, Jan. 15 -- India's wholesale inflation rose by 7.3 per cent in December, even as policymakers launched a plan to contain prices by shoring up supplies of staple items such as sugar and foodgrain.

Latest price data released on Thursday showed monthly inflation jumped nearly 3 percentage points from November's 4.78 per cent, though food inflation eased to 17.28 per cent after reaching nearly 20 per cent last month.

More worryingly, prices of non-food items such as textiles, paper products, metals and machinery were also on the rise.

"Week-on-week food inflation is down, which is a very good (sign)," Chief Economic Advisor Kaushik Basu said.

The spike in inflation rate puts pressure on Reserve Bank of India (RBI) to suck out excess money from the system to control prices. The RBI will meet on January 29 for a quarterly review of monetary policy, alth-ough economists said increasing interest rates would be ineffective in cooling the drought-related surge in food prices.

"The inflation jump has been driven by food items, and monetary action can't fix that," said Rajeev Malik of Macquarie Securities.

Analysts expect RBI to increase the percentage of money commercial banks need to park with the central bank by 0.5 per cent, to 5.5 per cent. There is also talk of a potential fuel price hike, which would further lead to cost pressures.