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August 22, 2008 14:40 IST
The government said on Friday it was concerned that there was no let up in inflation. It blamed part of the surge in wholesale prices on the base year effect.
"Wholesale Price Index (based inflation) continues to be a matter of concern... (but) without underplaying the seriousness of the concern, we wish to place the matter in perspective," said a finance ministry statement.
Base effect relates to inflation in the year-ago period, wherein if the rate of prices was too low, even a small rise in WPI now would arithmetically lead to a huge rise in inflation numbers.
"The annual point-to-point inflation is largely influenced by the trend in the corresponding week of the previous year, which is the base year," the statement said, explaining that in the previous year there was a decline in the price index from 4.39 per cent to 4.24 per cent.
This trend may continue till October-November this year, as the index had declined up to November 24, 2007.
The statement said the other part of the problem was supply side and noted that prices of fruits, vegetables, milk, tea etc are largely governed by localised supply demand factors and any other local disruptions like rain etc.
It is the movement of prices of these items that are impacting the prices of primary articles, it added.
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