Inflation at 16-week low, declines to 11.8%

NEW DELHI: Inflation dropped to a 16-week low of 11.8% for the week ended September 27 from 11.99% in the previous week. However, the year-on-year inflation is still way above 3.36% for the corresponding week last year. Economists are expecting inflation numbers to fall at a faster rate in the coming months due to dearer liquidity and easing supply-side pressures. Crude prices have crashed to around $85/barrel and the trend could continue. They added the southward movement in inflation numbers will give central bank more headroom to cut interest rates.

���With the fall in crude prices inflationary expectations is anchored for the time being. This gives RBI more elbow room for liquidity management, which is the need of the hour,��� Yes Bank chief economist Subdha Rao said.

Inflation in primary articles, which has a 22.02% weight in the wholesale price index (WPI), dropped marginally to 11.2% for the week ending September 27 from 11.3% in the previous week. On a week-on-week basis, the price index for primary articles remained unchanged. Within the primary group, the index for food articles remained unchanged while that of non-food items fell marginally. Although bajra, maize, tomatoes and onion posted a fall in price on a week-on-week basis, the year-on-year inflation in 30 essential commodities inched up to 7.74% from 7.7% reported in the previous week.

Finance ministry in a press statement pointed out that though overall year-on-year inflation was higher than that in previous year, the annual rate of inflation for primary articles was lower compared to the previous year.

The price index for fuel, power, light and lubricant segment (14.2% weight in WPI) remained unchanged for the fourth consecutive week. This is possibly because index was not updated and not because there was no change in prices. The year-on-year inflation in this category is still running high at 16.5%. Inflation in manufactured products, which have a weight of 63.8% in WPI, was down to 10.3% for the week ended September 27 from 10.6% for the previous week. In the corresponding week last year, inflation in manufactured products was 4.4%.

On a week-on-week basis the index for this category dropped 0.1%. Prices in food products, textiles, machinery and machine tools, basic metals, alloys and metal products declined marginally on a week-on-week basis. But prices in chemicals and chemical products moved up by 2.2% and that of non-metallic mineral products rose. Prices of 295 out of 318 articles in this segment remained unchanged, suggesting a lack of proper updating of price changes. Hence, there could be major revisions in this index when the final figures come out. For instance, the provisional WPI for the week ended August 2, 2008, has been revised up to 12.91% from provisional figure of 12.44%.

Crisil principal economist D K Joshi said as the supply side pressures were easing and liquidity was becoming dearer, the inflationary pressures would gradually vanish. He pointed out that further rate cuts and measures to infuse liquidity could be expected.