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created May 14th 2022, 06:27 by Ajit kumar Pani
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Cutting fuel taxes is a must to ensure
overall macroeconomic stability
As the ruling Bharatiya Janata Party marks the
eighth anniversary of Prime Minister Narendra
Modi’s government, retail inflation has accelerat
ed close to the 8.3% level last seen in May 2014, when
Mr. Modi assumed office in the last week of the month.
For a government that prided itself on its inflation tam
ing successes in the first five years, a combination of
factors including the COVID19 pandemic, high crude
oil prices and now the war in Ukraine have created a
perfect storm that sent the Consumer Price Index (CPI)
based inflation racing to a 95month high of 7.79% in
April. Food and fuel were the biggest culprits fanning
last month’s furious pace of price gains that seem un
abating. Food inflation as measured by the Consumer
Food Price Index (CFPI) quickened to a 17month high
of 8.38% last month, with rural consumers experienc
ing it at 8.5%, a pace that was 41 basis points faster than
that experienced by their urban counterparts. Ten of
the 12 items in the food and beverages basket of the ov
erall CPI registered sequential acceleration as well. Of
concern are the prices of cereals and products, which
constitute almost a tenth of the CPI and account for the
key staples of wheat and rice that are essential for en
suring food security. Inflation in cereals accelerated by
more than 100 basis points to 5.96% last month.
With both output and government procurement of
wheat set to be lower than estimated earlier and expor
ters seeking to corner a greater share of the crop to tap
the recent surge in global demand for the grain, domes
tic prices have already hardened and could pose a chal
lenge to household budgets in the coming months. Ed
ible oil is another constituent of the food basket
meriting close monitoring on the prices front. While in
flation in the price of the cooking medium slowed by 151
basis points from March, the pace was still a dizzying
17.28%, with the sequential rate also a sizeable 2.52%.
With the war in Ukraine having shut the tap on sunflow
er oil supplies from the largest global source of the com
modity, unless Indonesia rescinds its ban on palm oil
exports in the near future, the immediate outlook for
edible oil prices is far from reassuring. Ultimately
though, with inflation now having turned far more
broadbased and logging a strident pace in excess of 8%
for four of the six subgroups in the CPI, policymakers
have their task cut out. While the RBI must continue to
tighten monetary policy in order to protect the vast ma
jority who have no hedge against inflation, the pass
through of high oil costs, reflected in doubledigit price
gains in the transport and fuel and light categories,
leaves the Government with little option but to cut fuel
taxes if it is serious about taming inflation so as to en
sure overall macroeconomic stability.
Cutting fuel taxes is a must to ensure
overall macroeconomic stability
As the ruling Bharatiya Janata Party marks the
eighth anniversary of Prime Minister Narendra
Modi’s government, retail inflation has accelerat
ed close to the 8.3% level last seen in May 2014, when
Mr. Modi assumed office in the last week of the month.
For a government that prided itself on its inflation tam
ing successes in the first five years, a combination of
factors including the COVID19 pandemic, high crude
oil prices and now the war in Ukraine have created a
perfect storm that sent the Consumer Price Index (CPI)
based inflation racing to a 95month high of 7.79% in
April. Food and fuel were the biggest culprits fanning
last month’s furious pace of price gains that seem un
abating. Food inflation as measured by the Consumer
Food Price Index (CFPI) quickened to a 17month high
of 8.38% last month, with rural consumers experienc
ing it at 8.5%, a pace that was 41 basis points faster than
that experienced by their urban counterparts. Ten of
the 12 items in the food and beverages basket of the ov
erall CPI registered sequential acceleration as well. Of
concern are the prices of cereals and products, which
constitute almost a tenth of the CPI and account for the
key staples of wheat and rice that are essential for en
suring food security. Inflation in cereals accelerated by
more than 100 basis points to 5.96% last month.
With both output and government procurement of
wheat set to be lower than estimated earlier and expor
ters seeking to corner a greater share of the crop to tap
the recent surge in global demand for the grain, domes
tic prices have already hardened and could pose a chal
lenge to household budgets in the coming months. Ed
ible oil is another constituent of the food basket
meriting close monitoring on the prices front. While in
flation in the price of the cooking medium slowed by 151
basis points from March, the pace was still a dizzying
17.28%, with the sequential rate also a sizeable 2.52%.
With the war in Ukraine having shut the tap on sunflow
er oil supplies from the largest global source of the com
modity, unless Indonesia rescinds its ban on palm oil
exports in the near future, the immediate outlook for
edible oil prices is far from reassuring. Ultimately
though, with inflation now having turned far more
broadbased and logging a strident pace in excess of 8%
for four of the six subgroups in the CPI, policymakers
have their task cut out. While the RBI must continue to
tighten monetary policy in order to protect the vast ma
jority who have no hedge against inflation, the pass
through of high oil costs, reflected in doubledigit price
gains in the transport and fuel and light categories,
leaves the Government with little option but to cut fuel
taxes if it is serious about taming inflation so as to en
sure overall macroeconomic stability.
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