Industry is under tremendous cost pressure, FICCI
A FICCI Survey projected inflation to remain above the 7% level till the end of December 2008 according to industry perception.
Against the background of rising prices, FICCI had conducted a survey on inflationary expectations amongst Indian industry.
The survey findings show that Indian industry has high inflationary expectations and the majority of the companies feel that inflation would continue to remain above the 7% mark till the end of the year 2008.
As inflation tops the 11% mark and the government knuckles down to the task of containing the runaway price rise, the FICCI Survey points to the imperative need to manage inflationary expectations that are running high.
The 'FICCI Survey on Inflationary Expectations' reveals that majority of the 317 companies surveyed feel that the current bout of inflation is largely due to factors that cannot be really influenced by the monetary policy measures.
Rising oil prices, rising commodity prices and rising food prices are a global phenomenon and these cannot be influenced through the monetary policy. It is therefore important that the authorities take a re-look at the anti-inflationary package.
Industry is under tremendous cost pressure on account of rise in the price of raw materials, rise in the price of oil and oil products, rise in power costs, rise in wages and salaries and rise in interest burden.
All these factors together have put a huge dent on the margins and on the operating performance of the companies forcing many of them to partially offset this pressure through an increase in prices.
Given the present situation on the inflation front, industry fears that interest rates would remain high and possibly rise even further in the near term.
In the context of slackening pace of manufacturing sector growth, majority of the industry members feel that interest rates should be brought down.
The inflationary pressure in the economy is showing no signs of weakness. From a low of 4.46% in January 2008, inflation based on WPI moved to a high of 7.41% in April 2008.
Latest numbers show that inflation touched 8.10% for the week ending May 17, 2004, 8.24% for the week ending May 24, 2008, 8.75% for the week ending May 31, 2008 and further jumped to 11.05% for the week ending June 7, 2008. The present high rate of inflation has had an impact on inflationary expectations as well.
Both the government and the RBI have taken several fiscal, administrative and monetary measures to rein in inflation. While the results of these measures would become evident in a few months time, the findings of the present FICCI survey show that there is a strong feeling amongst members of Indian industry that inflationary pressures would be maintained and possibly rise further in the near term.
Nearly 68% of the respondents feel that the current inflation rate would be either maintained or it would further increase over the next six months.