Cutting fuel taxes a surefire way to address a key component of price pressures
The latest retail inflation figures suggest, for the first time, that Price pressure has started to ease In the economy, inflation slowed for the second consecutive month with the August print for the CPI at 5.3% after July’s 5.59%. Price trends among the constituents of the Consumer Price Index and Latest Wholesale Price Index Based Inflation, however, indicates that it would be premature to drop the guard on price gains. For one, inflation readings were raised a year ago giving a favorable base effect. However, month-on-month, the CPI rose by 0.25% from July, believing the forecast for a moderation in inflation. And the pace of price increases in at least three essential food components accelerated since last month, with meat and fish, dairy and oils and fats posting significant acceleration. Edible oils have been languishing for months now – August’s print was 33% after July’s 32.5% – and the first round of import duty cuts has had little effect in cooling their prices, prompting the Center to take a slew of duty cuts. And was forced to announce the installment. this month. Inflation in two other important protein sources, eggs and pulses, also remains a matter of concern. While egg inflation remained in the high teens at 16.3%, growth in pulses was at 8.81% after slowing 23 basis points from July’s pace of 9.04%. Persistent and widespread deflation in vegetable prices was the main positive contributor to the moderation in overall food and beverage inflation last month.
Inflation in fuel and light, clothing and footwear, health as well as household goods and services accelerated last month. Transport and communication, which includes pump prices of the main automotive fuels of petrol and diesel, remained in double digits at 10.2% even after a 30 basis points decline from July’s 10.5% pace. And WPI data shows that higher transportation costs as well as input price pressures fueled faster inflation in manufactured products, sending the segment’s momentum to 11.4%, a fourth straight month of double-digit price gains. Is. The outlook for inflation is far from optimistic if one considers that IHS Markit’s PMI survey for services showed input costs rose at the fastest rate in four months in August, and more recently, according to CII’s CEO. The majority of surveys have shown that average retail inflation is expected to be 67% this year. To hover close to or above the RBI’s mandated monetary policy upper limit of 6%. What policymakers only know is that ultimately, inflation is not just about a single point reading but much more about consumers and businesses’ expectations of a trend in prices. Fears of higher inflation in the future dampened sentiment and thus slowed economic activity. Cutting fuel taxes is a surefire way to address a key component of price pressures and it is time for the government to bite the bullet and act to provide a more sustainable solution.
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