Inflation Challenging the RBI too?

Mr. K.C. Chakrabarty, the Deputy Governor of Reserve Bank of India (RBI) told the media the other day that RBI did not possess a majic wand to tame inflation. The monster inflation refuses to bow before the RBI despite 10 upward revisions of key policy rates in the last 18 months.

If monetary and fiscal policy measures are found wanting to contain such a monster, the Government of India and the State Governments are certainly required to take a holistic approach for this purpose. Inflation could be caused by rising input costs for agriculture, manufacturing, construction and service sectors. The input costs in turn could be influenced by other general economic goods and services needed for production of those original inputs. Each one is chasing the other and who does it first is immaterial, It is however quite necessary to break the viscious circle so that cost-push inflaction doesn't become a permanent cause of inflation in future. The common man is affected mostly by the basic consumer goods, namely, food grains and sugar, pulses and oils, vegetables and fruits, fuels such as petrol and diesel. Of late, the food inflation is so severe that the common man and especially the urban consumers are badly hit and worried. This is the reason why the Government has recently recognised the need for compiling a separate food inflation index. The double digit inflation mainly caused by such food inflation refuses to come down on subsequent periods despite the concern expressed and action mooted by the economic advisors and agencies attached to the Government. Normally, when the inflation index is announced and commented upon favourably on a weekly basis, the public seem to take it with a sense of of satisfaction, but actually the initial figures obtaining soon after basic period can't take away and indicate the actual impact already registered and the prices pushed above the common man's reach.The supply side of inflationary pressures in agriculture sector is to be watched carefully and remedial measures launched and executed by the Governnment from time to time so that the general inflation is kept under control.