Inflation below 4% for 9th week in a row

NEW DELHI: The closely tracked wholesale price-based inflation rose 3.07% in the 12 months to October 13, the same as the previous week's rise which was the lowest in five years. Inflation has been ruling below 4% for nine consecutive weeks and below 5% for 19 weeks now. It stood at 5.46% in the corresponding week a year ago.

However, consumer price inflation is still above 7% as per August data, which economists say is a reason why the central bank may not lower the interest rates in the forthcoming monetary policy review on Tuesday. The remarkable rally in the equity market on Friday despite government’s efforts to moderate the “copious” inflow of funds, however, makes a case for tightening the liquidity in the system by raising the cash reserve ratio.

During the week ending October 13, prices of some food items such as wheat, gram and eggs classified as primary articles accelerated by 1% while prices of bajra and mutton rose by 2% and 4% respectively. Non-food primary articles such as raw cotton, copra and various seeds declined in the range of 1-3%. Rising global crude oil prices led to higher prices of oil derived products naptha, furnace oil and bitumen in the range of 2-5%.

“Inflation appears to be reasonably under control. But the price increase in primary articles is a matter of concern. A combination of costly imports and domestic prices which track global trends has led to the inflation in this group. High global crude oil prices is another matter of concern. The government had clarified recently when an early general election looked more imminent that there is no increase in retail price of oil. We should wait and see how far this holds true now,” HDFC Bank chief economist Abheek Barua told ET.

He said that the capital market regulator’s move to restrict anonymous foreign fund inflow has had some impact although the result may not have been as pronounced as the government may have wanted. “Therefore, the possibility of a CRR rate increase looks three times more likely now than in the last three four days immediately after the government’s move”, said Mr Barua. Capital market indices scaled record intra-day highs on Friday.

The rise in food price inflation is a reason not to touch the interest rates, he said. Finance minister P Chidambaram had said in Washington earlier this week that inflationary pressures from the supply side both on account of oil and food prices remain strong.

Lehman Brothers Chief Economist (Asia), Robert Subbaraman said interest rates are likely to remain stable for some time, though it could come down over the next five years. Also, CRR could be hiked by 50 basis points only in December, he added.

During the week under review, cement prices were up by 2%, lead ingots by 7% and auto-rickshaws by 3%. Even acids of all kinds witnessed an increase of 2% during the week. Inflation figure was revised to 3.99% for the week ended August 18 against the provisional figure of 3.94% as wholesale price index finally stood at 213.7 points compared to earlier estimate of 213.6 points.