RBI governor D Subbarao has said the central bank may have to sacrifice growth to manage inflation. "High inflation negates prospects of growth," said Mr Subbarao, speaking at the Indira Gandhi Institute of Development Research in Mumbai on Monday.

"For faster growth, we need to manage the growth-inflation trade-off. Persistent high inflation over past couple of years highlights the perils of mismanagement of inflation," he said. In the recent annual policy statement, Subbarao had said, the resurgence of inflation in the last quarter of last year became a matter of concern.

Although the trigger for this was the sharp uptrend in international commodity prices, the fact that these have quickly passed through into the entire range of domestic manufactured goods indicates that pricing power is significant.

In other words, demand has been strong enough to allow significant passthrough of input price increases. Importantly, this is happening even as there are visible signs of moderating growth, particularly in capital goods production and investment spending, suggesting that cumulative monetary actions are beginning to have an impact on demand.

Commenting on the April inflation number which puts the annual year-onyear rise in whole sale prices at 8%, Mr Subbarao said: "Inflation numbers are still high.

Perhaps there is a new normal to inflation," and added that there was now a structural aspect emerging to food inflation. Food habits of the rural poor are also changing. Until a few months ago, much of the inflation was due to supply-side constraints and higher global commodity prices. However, over the period, demand-side pressures are also emerging. Higher demand, along with higher income, is stoking inflation, Mr Subbarao indicated.

As a result, producers have been able to pass on higher input prices to consumers in the form of higher outprice. "The challenge is for the monetary and fiscal policy to work together to manage demand. We need to focus on the quantum and the quality of fiscal adjustment," he said. Elsewhere in the city, deputy governor Subir Gokarn said prices are unlikely to see a steep fall, noting that the risk of commodity price inflation becoming generalised is now visible. (Economic Times)