Can government crack whip on inflation

It will be a Herculian task for the present government that is preparing the budget to crack the whip on the inflation that is rising by leaps and bounds. The rise is attributed to rising food prices and hike in petroleum products' prices. However, the GDP has grown by a satisfactory 5.6 per cent due to a good monsson.
The year-on-year (y-o-y) inflation climbed to 12.1 per cent in mid-July 2008 from 5.1 per cent in mid-July 2007, according to current macroeconomic situation based on the data of 2007-08 published by Nepal Rastra Bank (NRB).
The average annual consumer inflation rose to 7.7 per cent in 2007-08 from 6.4 per cent in 2006-07. Rise in food prices and hike in prices of petroleum products were the driving factors for inflation in 2007-08, states the report.
The annual average price index of food and beverages group rose by 10.1 per cent in 2007-08 compared to an increase of 7.2 per cent last year. Of the items under food and beverages group, price indices of oil and ghee, grains, cereal products and pulses witnessed a growth of 20.9, 14.6 and 14.2 per cent respectively in the review period compared to an increase of 6.7, 6.4 and 17 per cent respectively the previous year.
Region-wise, the annual average yearly price level in Kathmandu Valley, the Hills and the Tarai rose by 7.2, 7.4 and 8.1 per cent respectively in 2007-08. The respective rates were 6.1, six and 6.7 per cent the previous year. A relatively higher price level was observed in the Tarai region mainly on account of the effect of sporadic unrest there in the review year. Average core inflation rose by 6.1 per cent in 2007-08 from six per cent the previous year, according to the central bank.
The balance of payments (BoP) recorded a surplus of Rs 29.7 billion compared to a BoP surplus of Rs 5.9 billion in 2006-07 and the budget deficit — on a cash basis — increased by 13 per cent to Rs 21.20 billion.
Preliminary estimates of national income accounts recently released by Central Bureau of Statistics (CBS) have placed real GDP growth in basic prices at 5.6 per cent and in producers' prices at 4.7 per cent in 2007-08 compared to respective growths of 2.6 and 3.2 per cent the preceding year.
In 2007-08, agriculture and non-agriculture sectors are reported to have grown by 5.7 per cent and 5.6 per cent respectively. These sectors witnessed a growth of one per cent and 4.1 per cent respectively the previous year, states the report.
Paddy production surged by a whopping 16.8 per cent in 2007-08 mainly due to a favourable monsoon. Over the past three years, paddy production had experienced a continuous decline. Maize, wheat and potato production also surged by 3.2 per cent, 3.8 per cent and 5.7 per cent respectively in the review year.
Consequently, the index of food grains and other crops increased by 7.3 per cent contrary to the 2.7 per cent decline last year. Production indices of vegetables and nurseries, fruits and spices, livestock and forestry groups have accelerated.
However, manufacturing production index declined by 1.4 per cent in 2007-08 compared to a growth of 2.6 per cent in the previous year. The decline was on account of a substantial fall in the production of vegetable ghee and oil, plastic products, garment and domestic metal products.