ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Spiralling Prices

It is a clear case of the government doing too little too late.

After stalling for months together the government has suddenly gone into a firefighting mode in a desperate bid to arrest the surging prices. As part of such efforts, the Reserve Bank of India suddenly called an off-cycle policy meeting and increased the cash reserve ratio by 50 basis points to 4.5% and the repo rate by 40 basis points to 4.4%, the first rate hike after August 2018. The government followed it up with a ban on wheat exports, resulting in vocal protests from across the globe. Later, it announced an excise duty cut on diesel and petrol and a `200 subsidy on cooking gas cylinders for 12 months to stop fuel prices from scorching consumers. The government also allowed duty-free imports of edible oils and restrained sugar exports to reduce the pressure on food prices. This sudden flurry of measures was in response to the continued increase in consumer price inflation. Consumer prices, which have steadily picked up in the last six months, suddenly surged to 7.8% in April 2022, the highest in eight years (after May 2014). This sharp surge, far beyond the mandated 2% to 6% range, has badly eroded the credibility of the inflationary targeting framework instituted to maintain price stability. The important reason for the price surge was the sharp rise in fuel and light prices, which was strategically suppressed for a few months before the assembly elections. They have now suddenly bounced back to double digits following the hike in international oil prices after the war in Europe.

However, the main driver of the surge in the consumer price index (CPI) was the increase in food prices, which rose from 0.7% in September 2021 to 8.4% in April 2022. Among food products, the highest increase was in edible oil and fats (17.3%) in April 2022. This was mainly fuelled by the rise in international edible oil prices after the disruption of trade following the war and the ban on oil exports by Indonesia.

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Published On : 20th Jan, 2024

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