A wry joke about inflation was doing the rounds among economists in India on Friday.
The United Progressive Alliance, India 's ruling coalition led by the Congress party, is alarmed about inflation, which hit a seven-year high of 8.75 per cent at the end of last month, according to government figures released on Friday.
The rise in inflation could not have come at a worse time for the government, which needs to call a general election by May next year in a country whose hundreds of millions of poor voters are sensitive even to incremental increases in the cost of living.
Indian inflation races to seven-year high Engaging India: Hard graft But the best thing the government could do, or so the jokes goes, is nothing. The base effect from increases in inflation this year will be so high that it will mute any percentage increase in prices in the opening months of next year. "Voters have short memories so who knows, such a strategy could work," said one economist in Mumbai.
The government is unlikely to be amused by such theories. But in one sense, those behind the joke are right. With inflation likely to hit 10 per cent in figures for the first week of June scheduled to be released next Friday, the near-term battle against inflation in India has been lost. The struggle has now shifted to how to bring it under control in the medium-term. "The government has run out of options - the situation is beyond any short-term fix. They are now fighting next year's inflation battle," said A Prasanna, an economist with ICICI Securities in Mumbai.
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The sudden rise in inflation in the first half of the year - it stood at just 4.5 per cent in January -
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