Inflation hits near 5-yr low of 3.32%

NEW DELHI: A marginal fall in fuel, power and non-metallic mineral prices led to a further slide in the wholesale price index to a near five-year low in the first week of September. As per the government’s weekly data, wholesale price index grew at 3.32% in the week ended September 8, noticeably down from 3.52% in the previous week.

The cost-of-living indicator stood at 5.22% in the corresponding week last year. Inflation is now well under control considering the government’s target of retaining inflation within 5% this fiscal.

Economists said inflation also appears to be lower because of the base effect. According to Yes Bank chief economist Subbhagda Rao, inflation has come down despite a rise in the prices of food articles because of the base effect. “It is likely to remain below 4% till November, but could rise subsequently due to a possible revision in retail fuel prices. As inflationary expectations are there, it is unlikely there will be a relaxation in the tight monetary policy.”

The government’s persistence with a tight monetary regime also helped reign in prices. However, economists caution that the firm sentiment in the global crude oil market, which has led to a rally in crude prices to over $80 a barrel in the past few days, can impact the declining trend in the inflation rate. A possible interest rate cut following the Fed rate cut would lead to increased money supply, which in turn could put pressure on prices.

“Inflationary fears have not yet been doused. Moving ahead, a possible increase in retail fuel price is a major concern. Moreover, provisional inflation figures seem to understate the actual inflation,” Crisil principal economist DK Joshi told ET. The government has revised the inflation figure for the week ended July 14, from 4.41%to 4.76%.

Mr Joshi said the government’s fiscal policy is showing results. He said the halt in tightening the policy may continue, but a rate cut following the Fed rate cut is not likely immediately. “RBI would closely monitor the economy’s performance and gauge if there is a slowdown or a brief pause for breath before any decision is taken,” he said.

The other cause for worry is the hardening of prices of some food articles. The index for primary articles, which includes major food and non-food items, rose 0.2% during the week. Food articles group rose by 0.2% due to higher prices of fruit and vegetables, condiments and spices, barley and wheat.