Inflation hits 5 yr low of 3.02%

NEW DELHI: Wholesale price-based inflation was recorded at 3.02% for the week ended October 20 — its lowest in five years — as prices of certain non-food articles and manufactured items moved up slower compared to the previous week.

Inflation has been ruling below 4% for 10 weeks and below 5% for 20 weeks now. The figure was at 5.61% in the previous corresponding week. The cooling wholesale price inflation has also started reflecting in the less widely-tracked consumer price inflation, which has started decelerating. The consumer price index rose 6.40% in September from a year earlier, lower than the annual rise of 7.26% in August, mainly due to a decline in some food prices, according to figures released earlier this week. Record high global oil prices, however, threaten to push up inflation.

Shortly after the figures were out, finance minister P Chidambaram attributed the decline to the steps taken on the monetary front. “We will continue to monitor inflation,” he said here. On October 30, the central bank raised the amount of cash that banks need to park with it by 0.5% in a bid to suck out the excess liquidity. This is expected to reduce the money supply by Rs 16,000 crore.

HDFC Bank chief economist Abheek Barua told ET that food prices are expected to cool down soon on account of the kharif harvest. “The consumer price inflation has gradually started reflecting the sharp decline in wholesale price inflation. The trend is likely to be more pronounced in the coming days. WPI-based inflation is likely to remain below 4% for the year. However, the record high oil price threatens to feed through the economy. It remains to be seen whether the government decides to raise retail oil prices, considering the political uncertainty,” Mr Barua said.

“Besides, a decision on oil prices cannot be based on day-to-day fluctuations in the spot market as it can disrupt the economy. Refineries usually have forward contracts for crude supply that insulate them from day-to-day fluctuations in the spot market. If crude oil prices maintains the current level for long, it could block further deceleration in inflation,” government-funded think tank RIS director-general Nagesh Kumar said. Falling inflation makes a case for RBI to relax its monetary policy as it can curb high dollar inflows on account of interest rate arbitrage, think tank ICRIER head Rajiv Kumar said.

During the week ended October 20, prices of different items moved in a narrow range with the price index moving up in most of the groups. Prices of food items such as maize, arhar, masur and wheat rose faster than the previous week while prices of others like fish marine, bajra and urad moved up a little slower.

Imported edible oil, bran and rice bran oil became costlier than the previous week while groundnut oil, gur, atta and maida prices slowed down. Among manufactured goods, prices of chemicals and chemical product prices slowed down while most other items rose faster.

In the energy segment, prices of bitumen, naphtha and furnace oil rose during the week.The inflation figure was revised to 3.94% for the week ended August 25 against the provisional figure of 3.79% as wholesale price index finally stood at 213.9 points compared to the earlier estimate of 213.6 points.