By S Sethuraman
India is battling a double-digit inflation, like many other emerging economies, largely resulting from the surge in global commodity prices, chiefly oil, food, metals and fertilizers. Overall, the international commodity prices are yet to moderate to an extent that would help countries including India to arrest the steady uptrend in inflation, already in double digit, and stabilise domestic price levels. Moving in that direction, the Government has announced further measures to strengthen availability of essential articles of daily consumption.

Supply management must have high priority along with demand control. Progress in the anti-inflation strategy, however, would depend much on whether the recent downtrend in global oil prices and some softening in cereal prices would become durable. Oil prices dropped from an all-time high of 147 to around 120 dollars by mid-August though it is still double the 60 dollars in March 2007. Oil prices are influenced by geo-political tensions and the US dollar’s exchange rate.

Cereal prices also eased in the second quarter of 2008 and this should be of some relief. With maximum wheat and rice procurement and a good kharif crop to be harvested, India is better placed with its food economy.

How Long Double Digit?
Reflecting world prices and domestic demand pressures, the annual rate of inflation began surging and entered double-digit in the new fiscal year. At 12.63 per cent in the week ended August 9, the annual rate of increase in the wholesale price index for all commodities was the highest in a decade and a half, a matter of utmost concern to Government, which has been tackling inflation through an array of fiscal, administrative and monetary measures on a continuous basis. While inflation which hurts the poor the most has to be brought down as early as possible, Government’s efforts at the same time seek to ensure that there is no disruption in the growth momentum.

According to the Finance Ministry, the current rate of inflation has also to be looked at the “base year” effect as the wholesale price index is measured on an annual point-to-point basis. That is, if the rate of price rise was too low in the relevant week of the previous year, even a small increase in WPI of the corresponding week in the current year would show up in a larger rate of inflation point-to-point. While prices of some articles may have softened, there are also significant rises in some other commodities, on a year to year comparison.

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