Dinesh Kamath's Editorial 'Inflation worries' that was published in Newsband

Inflation worries

A sharp surge in wholesale inflation is a cause for concern. A detailed look at The Wholesale Price Index (WPI) data for June reveals several pressure points warranting closer macro-economic scrutiny.

Inflation in the fuel and power group has quickened. Food articles are another source of worry, especially the prices of vegetables and the politically sensitive duo of potatoes and onions. Manufactured products — the third key group-level constituent of the WPI - are also signaling a worrying wider inflationary trend. Manufacture of basic metals that includes a range of goods from alloy steel castings, stainless steel tubes to copper plates and aluminum sheets posted headline inflation.

The policy makers can ill afford to ease their vigil. After all, a sustained trend of high WPI inflation will not only add pressure on the RBI to raise interest rates, but could also potentially undermine the pace of GDP growth. The Finance Ministry must come up with more and more shorthands in dealing with the problem of inflation. The cabinet should hold some powerful economist for the post of the Finance minister for a much robust economic structural revolution. An LL.B. will not work for each and every post.

Unless the economy is dealt by real economists instead of an advocate how one may think of a good economy. It’s high time that some prominent economist take over the Finance Ministry. The current FM is a complete failure. PM must also understand that only loyalist should not be the prime criteria to allocate important ministries.

When we look at the overall scenario, in terms of Economics and Econometric orientation and policy thrusts, the Government seem to have failed miserably in creating any positive thrusts for Growth/ Value Addition and base level production-commerce related activity acceleration. Some say that their hegemonic implementation of Demonetization and GST have added salt to injury. One wonders where we are moving to, in the coming months?

A large and increasing population combined with an abysmally low standard of living is ensuring that the demand for consumable items outpaces supply thereof. Hence the inflation.

Inflationary pressures on oil, vegetable prices and manufacturing products are on surge thanks to the 7th pay commission hike and easy consumer loans by banks. But there is no alarming bell on the issue and it is well under control. Rural spending is coming up and demand for consumer and durable commodities are on the surge by rosy hike in wages. Anyhow both the WPI and CPI must be kept under control.

The RBI has little option but to raise rates. That is also required to protect the rupee. Benign inflation, courtesy lower oil and commodity prices, was the only bright spot on the economic Report Card. As we head into important state elections and then the general election, even that source of comfort is fading