Concerned at the ever soaring inflation rate, that touched a 13-month high of 6.68 per cent, the Government has decided to hold a meeting of high-level cabinet committee on Monday to take stock of rising prices, Finance Secretary D Subbarao told reporters. He also added that Friday’s inflation numbers were quite disturbing and attributed them partly to high global commodity price.

Meanwhile, another high-level meeting will be held on Wednesday to introduce measures for maintaining adequate supply line (of mainly rice, wheat and edible oil at ‘tolerable’ rates ) in the face of global pressure on prices, according to Commerce Secretary G K Pillai.

Commodity prices are rising globally despite fears of recession in the US which is very unusual.“Generally, we expect commodity prices will go down when there is recession in the developed countries. If you look at past recession in the US, there is depression in commodity prices. But, this time there is elevation in commodity prices together with recession in the US,” Subbarao added.

However, Economists are divided over measures to check inflation. Fiscal concessions could include tax cuts targeted at specific commodities like metals and food products. Further measures could be to disincentivise exports. Another option, on which Economists are divided, is whether to hike interest rates. It would only constrain supply further, goes one school of though.

Meanwhile, The Reserve Bank of India (RBI) has maintained its main lending rate, at 7.75% for a year now. “The sharp rise in inflation in March is a result of short supply (not a demand spurt) and hence the government might look at supply side measures to give immediate relief to consumers. I do not think RBI may venture to raise rates now,” said Crisil director and principal economist DK Joshi.

While global crude prices have surged almost 72% since the beginning of last year, prices of wheat and rice, too, have spiralled. With the rupee conceding much of its recent might, the benefit of a strong currency working as a cushion on the import bill too is not there now.

The Finance Ministry is now not left with many options after raising interest rates, as a measure to curb expansion of the economy, is ruled out by most economists. Surging global crude,wheat and rice prices and a weakening rupee does not help the cause either. Increase in global raw material proces for metals, rubber, machiner and tools have also multiplied the problems. It seems that the Ministry needs to take some effective steps and soon.

Ref: Economic Times