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Full circleof typign

created May 14th 2022, 06:27 by Ajit kumar Pani


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502 words
76 completed
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Full circle
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 inflation has accelerat­
ed close to the 8.3% level last seen in May 2014, when
Mr. Modi assumed office in the last week of the month.
For a government that prided itself on its inflation tam­
ing successes in the first five 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 inflation 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 inflation 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. Inflation 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
flation 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 sunflow­
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 inflation 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 inflation, the pass­
through of high oil costs, reflected 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 inflation so as to en­
sure overall macroeconomic stability.

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