Inflation down at 5.95%

NEW DELHI: Inflation declined to 5.95 per cent during the week ended January 13 from a two-year high of 6.12 per cent in the previous week, primarily due to decline in prices of food products.

Even though inflation fell compared to the previous week, it is still higher than the threshold of RBI's projection of of 5-5.5 per cent for this fiscal.

At 5.95 per cent, inflation is the highest this fiscal. This would put pressure on the central bank to hike interest rates in its credit policy review slated for January 31.

"Inflation is the main problem... keep that in mind," Finance Minister P Chidambaram had said, giving rationale for his argument as to why liquidity would not be released in the system through cut in Statutory Liquidity Ratio.

According to government estimates released today, Inflation declined despite the wholesale prices index rising by 0.05 per cent to 208.3 points for the week ended January 13 against 208.2 points in the previous week.

This is so because inflation data is based on variation of the index over a year period. Index in a year ago period stood at 196.6 points and inflation at 4.19 per cent.

Cereals, pulses, fruits, vegetables became cheaper. However, there is variation within these product categories. Urad, whose trading has been suspended in futures market, declined. However, the decision to ban futures trading came on January 23, while the inflation data pertained to January 13.

Prices of other products such as edible oil and cement, on which customs duty has been slashed, also declined. However, metals showed a mixed trend. The exact effect of these measures would be known only in a fortnight.

This is the last official data on inflation before the RBI credit review of January 31. Though bankers said they would like increase in liquidity since credit is growing at a much faster rate than deposits, it is highly unlikely at the present scenario.

In fact, Chidambaram in an interview had said nobody is going to cut SLR at the present juncture. SLR is a mandatory requirement for banks to keep portion of their deposits in liquid assets, mainly the government bonds. The requirement is currently fixed at 25 per cent.

A few days back, President A P J Abdul Kalam had given assent to a ordinance empowering RBI to cut SLR below 25 per cent. One per cent cut in SLR releases around Rs 25,000 crore in the system.

Food articles prices declined both in primary articles category as well as the manufactured category. However, there are exceptions too as the prices of barley, moong, condiments and spices and fish-marine moved up by one per cent each.

Urad became expensive by three per cent, bajra by two per cent and arhar and gram by one per cent each.

The Finance Minister had last week said that prices of urad and arhar among other food items are causing concern.

On a broader category, pulses price declined by 1.1 per cent, vegetables by 3.9 per cent, fruits by 0.5 per cent, and cereals by 0.1 per cent.

However, prices of eggs, meat and fish rose by 0.1 per cent, condiments and spices by 0.7 per cent.

In manufactured products also, food items like rice bran oil fell by four per cent and oil cakes, gur, sugar and imported edible oil by one per cent each. However, the prices of unrefined oil moved up.

On a broader category, it is only food articles group that has shown decline in WPI, while other categories like non-food articles and manufactured products showed a rise. The category of fuel, power, light and lubricants remained intact at the previous week's level.

Among non-food articles, prices of raw rubber rose by eight per cent, raw silk and groundnut seed by four per cent each, linseed and raw cotton by two per cent each and niger seed, rape and mustard seed and sunflower by one per cent each. However, the prices of gingelly seed declined.

In manufactured products, cement prices fell marginally and edible oils by 0.2 per cent.

Among metals, prices of basic metals alloys declined by 0.2 per cent, but non-ferrous metals became expensive by 1.5 per cent. More specifically, prices of aluminium extrusion moved up by seven per cent, aluminium ingots by six per cent, other aluminium material by three per cent and aluminium products by two per dent.

However, prices of narrower steel strips fell by 10 per cent, zinc ingots by five per cent and lead ingots by two per cent.

Among other manufactured products, epoxy resins became dearer by 44 per cent, benzene by 11 per cent, electric motors by six per cent and cigarettes by three per cent.

Inflation has been revised to 5.56 per cent for the week ended November 18 against the provisional estimate of 5.45 per cent. The revision is based on final numbers for wholesale prices index, which stood at 209 points against 208.8 calculated earlier.