The sharp increase in food prices in the December 2010 weeks prompted the Prime Minister’s Economic Advisory Panel to revise its projections for overall inflation at the end of the 2010-11 financial year upward to 6% as against the earlier estimate of 5.5%. Food inflation surged to a ten-week high of 14.44% for the week ended 18 December 2010 as prices of vegetables, onions in particular as well as fruits, cereals and protein- based products, continued to increase. Overall, inflation in November 2010 had stood at 7.48%, down from 8.58% in the previous October 2010.
According to finance minister Pranab Mukherjee overall inflation would moderate to around 6.5% by end of March 2011 as against the earlier projection of 6% in the finance ministry’s Mid-Year Review.
To control inflation will continue to remain a major concern for the Reserve Bank of India (RBI). Hiking policy rates is not a feasible option before the apex bank as the system is facing a cash crunch. A tighter monetary policy has implications for growth, as credit needed for investment would be hard to come by and may hit the government’s attempts to put the economy on a 9%-plus growth path.
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