Hike fuel prices, inflation will fall in six months: Advisor (Roundup)

New Delhi, June 14 (IANS) On a day India’s annual rate of inflation climbed to double-digit level, Chief Economic Advisor Kaushik Basu Monday said he favoured freeing the prices of petroleum fuels and that its impact will even out within six months.

‘My belief is that fuel prices ought to be decontrolled. I feel that a certain amount of decontrol ought to be done,’ Basu, whose inputs help the finance ministry in framing policies, told reporters during an interaction here.

‘The inflation figure you are looking at may increase in the short-term. But six months down the line, you will see lower inflation due to lower fiscal deficit,’ said the former professor, who has a doctorate from the London School of Economics.

His remarks came on a day when official data on wholesale price index showed that the country’s annual inflation rate for May had jumped to double digit at 10.16 percent in May from 9.59 percent in April, due mainly to higher food and fuel prices.

Data released by the commerce and industry ministry showed that prices of food articles rose 16.49 percent last month, against 16.87 percent in April, while that for fuels moved up 13.05 percent in the month under review.

Prices of primary articles went up by 16.6 percent, a sharper increase from the 13.88 percent in April, signalling that inflation was getting increasingly broad-based. Manufactured products were dearer by 6.41 percent.

The latest food inflation figures also show that respite is not in sight at least for some more time as prices of food articles had gone up by 16.74 percent for the week ended May 29.

The government now is proposing to free pricing of transport fuels, which will allow oil-marketing firms to hike the retail price of petrol and diesel. Given the current situation, the move will allow an increase of such fuels by up to Rs.3.5 per litre.

A meeting of the empowered group of ministers, presided over by Finance Minister Pranab Mukherjee, had met last week to consider this. But the decision was deferred since there was lack of quorum. The group meets again June 17.

Regardless, key policymakers admitted inflation was getting broadbased, with a consensus emerging for the Reserve Bank of India (RBI) to hike interest rates when it reviews the monetary policy stance July, or even earlier.

‘I think the picture is clear. Inflationary pressures are stronger,’ said C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council and a former governor of the central bank. ‘Some action will be called for by RBI in terms of policy tightening.’

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