Inflation dips to 5.74%, but celebrations must wait

NEW DELHI: In a long-awaited relief to consumers and the UPA government, inflation finally entered the sub-6% territory. Driven by a strong base effect, the fiscal ended with 5.74% inflation rate. The wholesale price index (WPI), on which inflation is based, rose to 210 for the week ended March 31, from 209.8 in the previous week. However, this may well be a temporary blip as prices of primary goods and manufactured products continue to rule high.

WPI rose by 1.4 points between March 25, 2006, and April 1, 2006, against a rise of 0.2 points between March 24, 2007, and March 31, 2007. For economists, however, there is no reason for cheer yet. “Inflation has slipped below 6% only because of the base effect. If the prices of manufactured products remain stable and if the monetary stand remains tight, then in the next few months there may be something to cheer about,” said Economic Advisory Council member Saumitra Chaudhuri.

“The decline in inflation below 6% could be a blip as it does not indicate a sustained reversal of trends in inflation”, Crisil Principal economist D.K Joshi said. He explained that its too early to say that the downward trend has begun as inflation in many commodities such as those in the primary articles basket continues to remain high. Inflation in primary food articles was 8.3% and that in manufactured products was 5.7% for the week ended March 31.

The WPI figures released by the government on Friday show that for the week ended March 31, the prices of ragi and bajra rose by 2% each and milk, masur and gram by 1% each. The prices of vegetables also rose by 0.6%.

The inflation rate for the week ended March 24 was 6.39%, outside RBI’s comfort band of 5-5.5%. It had breached the 6% mark in the first week of January and has been exceeding 6% ever since. It had peaked at 6.73% in the week ended February 3. The average inflation for the fiscal is 5.18%.

For the week ended March 31, in the fuel category, naphtha became costlier by 3% and furnace oil by 1%. The index of the manufactured products remained unchanged at 183.4. The prices of cement, on which the government has cut the import duty, declined by 1%.