Fuel price hike to spur inflation; govt, RBI to intervene soon

NEW DELHI: Fuel price hike will further stoke inflation and prompt the government and the Reserve Bank to take strong measures to ease pressure on prices soon, said country's Chief Statistician Pronab Sen.

"You (are) already in inflationary process. The non-food inflation is accelerating. In that situation, this (fuel price hike) can actually trigger off stronger inflation process," he told reporters on the sidelines of a function to mark the Statistics Day.

The government, on Friday last, increased the prices of petrol by Rs 3.73, diesel by Rs 2 a litre and cooking gas by Rs 35 a cylinder.

While, overall inflation is hovering over 10 per cent, food inflation was 16.9 per cent for the week ended June 12.

Noting that neither the Finance Ministry nor the RBI has taken any strong anti-inflationary measure, Sen said, "sooner or later they are going to come."

On the possibility of RBI taking steps to tighten monetary supply before its scheduled policy review on July 27, Sen said, "that is up to the RBI."

Sen, however, pointed out that the need for a huge sum of money by telecos for mobile spectrum has sucked out liquidity to a large extent from the system.

"Spectrum sale ...(has) sucked out huge liquidity, equivalent to 50 basis points increase in CRR ( Cash Reserve Ratio)," he added.

The CRR is the portion of deposits that banks are required to keep with the RBI.

Elaborating on the impact of the hike in fuel prices, Sen said that the "increase generally tends to have a depressing effect on the economy. It has a very low elasticity of demand."

Moreover, he added, "when fuel price is increased, it generally pulls resources from other forms of expenditure.