Surge in April inflation a surprise: RBI

Mussoorie: Describing the upsurge in inflation in April as a "surprise" development, the Reserve Bank on Thursday said it will take into consideration the emerging price situation and accordingly decide on policy action in its

review next month.

The central bank has also asked the government to take action to reduce the fiscal deficit, which rose to 5.9 per cent of the GDP in 2011-12.

"We noted that inflation has been a surprise upside for month of April...We will consider how the inflation scenario has evolved. We will take into account the growth statistics and take a decision," RBI Governor D Subbarao said while addressing a press conference after the board meeting.

The inflation, as measured by the wholesale price index, rose to 7.23 per cent in April from 6.89 per cent in the previous month. Besides, retail price inflation (CPI) entered double digits of 10.36 per cent in April from 9.38 per cent in March.

"We noted that increase in WPI has been on account of food inflation," Subbarao said adding the central bank will take into account recent developments while announcing its mid-quarterly policy review on June 18.

"Core inflation, which is non-food manufacturing (items) has remained below 5 per cent. So in our next mid-quarterly review, we will take into account the numbers which have come after our mid-April statement," he said.

Pointing out that reduction of fiscal deficit was necessary to contain inflation, Subbarao said, "Our views are quite well known on fiscal deficit. We have said that fiscal consolidation is very important and very necessary for inflation to come down.

"So we have said that in our annual policy statement last month that government must deliver on the budgeted fiscal deficit target", he said.

Because of various global and domestic factors, the fiscal deficit of the central government during 2011-12 soared to 5.9 per cent of the GDP as against the budgeted 4.6 per cent. The government proposes to bring it down to 5.1 per cent of GDP in the current fiscal.

The current account deficit, which is the difference between inflow and outflow of foreign exchange, rose to 4 per cent of GDP at the end of December 2011, as against 3.3 per cent during 2010-11.