Inflation declines to 5.07%
After two weeks of increase, inflation fell sharply again, dropping to 5.07% for the week ended January 24 from 5.64% in the previous week, as price of metal products, fruits and vegetables fell considerably. The wholesale price index-based annual rate of inflation was 4.78% in the corresponding week last year, data realised by the government showed. Chances of a rate cut are now high as inflation softens. Several government-owned banks have hinted at rate cuts up to 200 basis points in the coming days. The annual inflation rate for food articles, which has been hovering around a 10-year high, also eased slightly over the week. The rapid decline in the WPIbased inflation — after the truckers’ strike had arrested the momentum for two weeks — has reinforced the expectation of a brief period of mild deflation by mid-year on the back of demand destruction, a sharp fall in commodity prices and base effect. Now that the declining trend is reestablished, economists expect the Reserve Bank of India to cut repo and reverse repo rates by 50 basis points over the next couple of weeks to give a boost to the slowing economy. The annual rate of inflation had fallen for 10 straight weeks to touch 5.24% for the week ended January 5, before the eight-day long truckers’ strike in early January caused prices of food articles shoot up. This resulted in the rate of inflation going up for two straight weeks. With the impact of trucker’s strike wearing off, the pace of fall in inflation is expected to gather pace over the coming weeks. Yes Bank chief economist Shubhada Rao said: “Inflation numbers for the last week of January, which will be released next week, will be below 4% due to cheaper food articles and fuel items.” The fuel products became costlier over the week, due to higher prices of naphtha (15%), furnace oil (2%) and light diesel oil (2%). On January 28, the retail fuel prices of petrol, diesel and LPG were cut, a move that will bring down inflation by 37 basis points in the numbers to be released next week. Inflation for the week ended January 29 was revised downwards to 7.86% from the provisional 8% released earlier. Inflation had raced into double digits in June last year after the government raised fuel prices, and peaked just under 13% in August. The RBI said in its monetary policy review on January 27 annual inflation is expected to be below 3% by the end of March.
Labels: India Inflation 24 January 2009