Beguiling base: On fuel prices and inflation

States and Centre must cut fuel levies to bring down inflation and fuel consumption

With last fiscal’s IIP numbers showing output rebounding in September-October 2020, and some industrial sectors, including automobile manufacturing, hit this year by raw material shortages and logistic constraints, it is hard to see production sustaining the pace of growth. Inflation too has benefited from the elevated levels in the year-earlier period when the headline reading had accelerated to 7.3% in September 2020, and subsequently touched 7.6% last October. The CPI data mask the real extent of price pressures across major product categories. Undermining nutritional security especially among the sizeable number who have suffered job or income cuts, key protein sources including meat and fish and pulses and products recorded provisional inflation of 7.99% and 8.75%, respectively, while the vital cooking medium of oils and fats saw price gains accelerate to a punishing 34.2%. Transport and communication, which captures pump prices of petrol and diesel, also stayed stuck close to double digits at 9.5%. With global crude oil ruling near three-year highs, unless the Central and State governments deign to respond to the RBI’s entreaties and cut fuel levies, there is little scope for inflation easing by much in this category. The coal crisis that is roiling power output is sure to also ripple across sectors and undermine price stability unless policy makers intervene post haste.

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