When people complained about rising prices of essential commodities some months ago, Finance Minister Chidambaram claimed that it was temporary and would soon be reduced. However, data for the last few months of 2006 show that inflation has continued to rise (see chart below). The rate of increase in the official wholesale price index has crossed 6% per year, while the consumer price index has crossed 7% per year, and both rates continue to rise till today. As is well known, the official indices under-state the extent of the problem that people face.

We cannot expect any solution to the problem of inflation from the UPA Government because it is committed to defend the capitalist system, which is the root cause of inflation. The system of production and the policy of the government are geared towards maximization of plunder – that is, to take out as much as possible and put back as little as possible into the human productive forces. Inflation is one of the ways in which this takes place. Rise in commodity prices reduces the purchasing power in the hands of the working people. With the same income they can buy less, so they consume less. They become poorer.

As part of the drive of the Indian bourgeoisie towards becoming a global power, production is being geared more and more towards the world market. As part of the drive towards globalisation, the Reserve Bank of India has been buying dollars in the market, creating artificial demand to prop up the value of the US Dollar. This has been a conscious policy for the benefit of those capitalists who export and earn in dollars, and those who bring dollars to invest in Indian assets. Every time the RBI purchases one dollar, it injects 45 rupees into circulation. It increases the quantity of money in our economy without a corresponding increase in goods and services. This is one of the factors fueling the rise in inflation rate. Workers’ and peasants’ incomes are being further squeezed for the sake of keeping high the rates of profits enjoyed by the capitalists.

Speculation in commodities, through forward trading, is another factor that has led to greater volatility in commodity prices. Militarization and debt servicing add to the problem, as they take massive wealth out of the economy without giving anything in return. Hoarding by private trading interests further aggravate the problem.

The solution to inflation lies in changing the orientation of the economy. Rather than the maximization of private profits being the overriding motivation and driving force of the economy, it must be replaced with the fulfillment of the growing material and cultural needs of the working population. More must be put back into the human productive forces – the workers, peasants and all the toilers – than is taken out of them.

Immediate measures that must be taken in order to tackle the problem of inflation include the following:

• Stop RBI purchasing US Dollars in prop up its value and keep the Rupee cheap
• Moratorium on interest payments by central and state governments – redeploying the money saved to provide for people’s needs
• Immediate halt to forward and futures trading in commodities
• Social control over trade to ensure adequate supply of essential commodities at affordable prices for all.