Pain from prices: On the need for more fuel tax cuts

More fuel tax cuts are needed to prevent inflation from hurting the recovery

Nor does the data on wholesale prices provide any reason for cheer, with provisional inflation based on the wholesale price index racing to a record 14.2% in November, from October’s 12.5%. The fuel and power sub index surged 39.8% year-on-year, and all three major groups comprising the WPI posted sequential accelerations as well. Persistently high and climbing wholesale prices of basic metals, chemicals and chemical products, and textiles among manufactured products have the potential to feed through down-the-line to retail prices and add to inflationary pressure for consumers. While manufacturers in some sectors may opt to absorb rising input costs, at least in the short term till demand gets more entrenched, the signs including from automobile makers are far from reassuring. The tariff increases announced by telecom service providers last month are also expected to feed through into retail inflation in December and international semiconductor shortages and logistics bottlenecks are roiling the outlook for prices of electronics and other products reliant on global supply chains. With the rupee continuing to weaken against the U.S. dollar, policymakers also face the challenge of contending with imported inflation including the landed cost of crude oil shipments. The onus is clearly on the Centre to deepen the fuel tax cuts and address other supply-side issues to prevent inflation from hurting the recovery.

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