Inflation slips but rate cut unlikely
Wholesale price-based inflation softened in the week ended December 8 to 3.65%, from 3.75% in the previous week, on account of lower food and vegetable prices.
By TNN |
NEW DELHI: Wholesale price-based inflation softened in the week ended December 8 to 3.65%, from 3.75% in the previous week, on account of lower food and vegetable prices. Inflation was ruling at 5.63% during the corresponding period last year. The figure is well below the central bank’s target of 5%. Meanwhile, the provisional figure for the week ended October 13 remained unchanged at 3.07%, an official release said on Friday. The wholesale price index, on which the inflation data is based, stood at 215.9 from 216 for the previous week.
The weekly blip comes in the broader context of various fiscal moves to contain inflation, such as import duty cuts, import of pulses and issuing oil bonds to oil PSUs for selling fuel at regulated prices.
According to economists, farm production increased on better rains and helped rein in rising vegetable and fruit prices. Prices of pulses also fell due to improved supply in the wake of imports. However, the economists raised concerns over the inflationary pressure building up in edible goods because of the mismatch between supply and demand.
Further, lower inflation may not be enough reason for RBI to cut interest rates in the wake of huge capital inflows and a volatile capital market, the economists said. “Inflation is likely to remain in the comfort zone of 4-4.5%. Higher crude oil price and huge capital inflow into the economy is a risk that could impact price stability. The central bank is more concerned about the liquidity flow and its impact on inflation. As the money supply continues to remain above the RBI’s projected level, the possibility of a rate cut is highly unlikely,” said RIS director-general Nagesh Kumar.
On the effect on inflation of higher crude prices, Crisil director and chief economists DK Joshi said: “Higher crude oil price is a matter of concern. While the government is insulating the common man by selling domestic crude at subsidised rates, the industry is buying fuel at market-determined prices. This will lead to price escalating for many end products,” he said.
“Inflation fell in the week due to a fall in prices of seasonal commodities like fruit and vegetables,” said Ficci economist Anjan Roy. “Now that inflation as well as inflationary expectations have moderated, RBI should fine-tune its interest rate policy, otherwise its continuous hawkish stance would hurt industry and the economy,” Mr Roy added.
The weekly blip comes in the broader context of various fiscal moves to contain inflation, such as import duty cuts, import of pulses and issuing oil bonds to oil PSUs for selling fuel at regulated prices.
According to economists, farm production increased on better rains and helped rein in rising vegetable and fruit prices. Prices of pulses also fell due to improved supply in the wake of imports. However, the economists raised concerns over the inflationary pressure building up in edible goods because of the mismatch between supply and demand.
Further, lower inflation may not be enough reason for RBI to cut interest rates in the wake of huge capital inflows and a volatile capital market, the economists said. “Inflation is likely to remain in the comfort zone of 4-4.5%. Higher crude oil price and huge capital inflow into the economy is a risk that could impact price stability. The central bank is more concerned about the liquidity flow and its impact on inflation. As the money supply continues to remain above the RBI’s projected level, the possibility of a rate cut is highly unlikely,” said RIS director-general Nagesh Kumar.
On the effect on inflation of higher crude prices, Crisil director and chief economists DK Joshi said: “Higher crude oil price is a matter of concern. While the government is insulating the common man by selling domestic crude at subsidised rates, the industry is buying fuel at market-determined prices. This will lead to price escalating for many end products,” he said.
“Inflation fell in the week due to a fall in prices of seasonal commodities like fruit and vegetables,” said Ficci economist Anjan Roy. “Now that inflation as well as inflationary expectations have moderated, RBI should fine-tune its interest rate policy, otherwise its continuous hawkish stance would hurt industry and the economy,” Mr Roy added.
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