Inflation Spikes in February

Inflation is rising. Both the retail inflation as well as the core inflation has spiked to 5.03% and 5.7 in the month of February 2020 in the economy in comparison to the month of January while Index for Industrial Production (IIP) has contracted 1.6% during the same period. This spike in the inflation can partly be attributed to the small base but it is largely due to cost push pressures in the economy. Most importantly the inflation is not expected to moderate significantly besides the base effect until and unless the government decides to cut the taxes on fuel.

The high taxes on the fuel prices are pushing the cost upwardly via its direct as well as indirect impact on the inflation. Even the RBI through its monetary policy in the month of February has already cautioned about this. It is the time for the government to take action in this regard, else the economic activities that have gained momentum and the positivity in the business and economic environment will start eroding with the falling demand in the economy.

It must be noted by the government that if inflation continues to elevate and breaches the upper band of the targeted consumer inflation, it will start having a negative impact on the every sector of the economy and eventually the demand in the economy will start falling leading to increased numbers of insolvencies which will further make the banking crisis even more grave and complicated. So the government should now put a dynamic mechanism to control the rising prices of oil products and put aside its greed to collect more revenues.

Rajeev Upadhyay