Inflationary trends

RESURGING inflation is bad news. It affects growth, dampens business confidence and makes exports expensive. It also reduces purchasing power and forces people from the low- and fixed-income segments to compromise on their quality of life. The escalation in prices last month does not augur well for the economy or the people struggling to cope with the effects of slow growth, falling incomes and increasing job losses. The latest headline inflation data shows that prices have increased by 11.05 per cent in February, up from 10.1 per cent the previous month. Soaring global oil prices, the depreciating rupee and a widening budget deficit, which is forcing the government to print new money, are to blame for the current price inflation. The hefty increase in domestic oil and electricity prices announced earlier this week to keep the budget deficit at a manageable level will push consumer inflation higher during March.

Yet there is a silver lining. February inflation was lower than the 12.85 per cent for the same month last year. Similarly, the average inflation of 10.7 per cent in the first eight months of the current financial year is much lower than the 14.08 per cent for the same period last fiscal. Although core (non-energy, non-food) inflation also spiked by 0.3 per cent to 10.6 per cent last month, the escalation was much lower than the 1.5 per cent recorded for January. Still, the government should not allow this to shift its focus from the problems besetting the economy for several years. This should also not be used as a pretext by the State Bank to increase the cost of borrowing at the expense of private investment. The bank’s tight monetary policy has failed to tame inflation because the price escalation has more to do with rising global commodity and oil rates than the increase in domestic demand that its monetary policy targets to curtail. It has only discouraged private investment at the expense of jobs and exports. A better way of fighting persistent inflationary trends is to implement the long overdue economic and fiscal reforms for boosting the economy and encouraging private investment to create jobs and increase incomes and exports.