Food inflation has continued to rise. In the week to October 22, it rose to a nine-month high of 12.21 percent y-o-y, raising fear of a higher WPI based inflation. Reacting to the recent data, the Finance Minister Monday cited high demand for protein-based food articles as the prime reason. "No country in the world can feed 120 crore-plus people ... there is no alternative than to produce, preserve, process and distribute," a media report has quoted him as saying.
These days, such news is a dime a dozen. Every time after inflation data is released, there are excuses - high demand, rising income, economic growth, bad harvest, surge in global commodity prices, costlier crude oil, and so on. In a bid to grasp the reins of inflation more tightly, the RBI in its every monetary policy review goes for interest rate hikes, the 13th (since March 2010) of which occurred in late October. But once and again high inflation figures come out to frustrate us. Everyone is growing tired of this repeating cycle.
With inflation refusing to be tamed down, the credibility of the monetary policy has been at risk. People hardly believe these days that the RBI will be able to bring inflation down. However, the RBI alone should not be blamed. At the same time, the government's loose fiscal policy stance is equally responsible to dilute the central bank's monetary stance.
Inflation is high, food prices are taking toll on the common man, higher interest rates are adding to the industry's problems – these issues are not new. Also, it is increasingly clear that high inflation is not the result of only some sudden shocks and it cannot be tamed down only by monetary tightening. Monetary measures may be still required but what is more required is to remove the supply bottlenecks and make effective fiscal adjustments.
Whatever the cause behind, and whatever the solution to the inflation crisis, even a layman today knows that the government is fumbling and lacking a sense of direction -- they have failed to bring inflation to heel; they have failed to get the common man out of high prices; they have failed to show sensitivity towards people's worries. Ironically, last week petrol prices were again hiked, triggering opposition even from some of the government allies. In this backdrop, taming down inflation will continue to be a tough challenge for the government. Also for the RBI, which recently hinted at pause in further rate hikes, the test is far from over.
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