Inflation falls to 12.1%

Inflation fell to 12.10 per cent for the third straight week, but it was hardly exulting as the Finance Ministry pointed to an increase in prices of 30 essential commodities including wheat, salt and sugar.

However, falling prices of edible oils, fruits, maize and spices, among other things, shaved off 0.24 per cent from the wholesale price index-based inflation for the week ending August 30.

Although the fall would not lead to any easing in monetary policy, there may also not be any further tightening of key rates by the Reserve Bank, if the declining trend continues, analysts said.

Inflation fell despite a low base of 3.72 per cent and rise in indices in all broad categories.

In the food articles group, imported edible oil prices which had been rising quite a bit, declined by four per cent, giving some breather to the Government. Besides, prices of fruits, maize and spices went down.

A Finance Ministry statement said inflation rate of 30 essential commodities, however, increased to 7.52 per cent during the week from 6.90 per cent in the earlier week.

There was an increase in the prices of sugar, salt, wheat, arhar, urad, jowar and bajra, it added.

Axis Bank Economist Saugata Bhattacharya said, "Inflation will drop gradually and I expect it to reach 10 per cent by the middle of January." Earlier in the day, Prime Minister's Economic Advisory Council Chairman Suresh Tendulkar said inflation rate may have peaked. RBI may not further tighten the monetary stance if inflation has peaked, he said. 

While indices rose in all major categories, be it primary articles, manufactured products or sub-groups of food articles, non-food articles, minerals, textiles, the index of fuel category remained unchanged. Analysts said the impact of fall in global prices could be seen from the next week, which means inflation may fall further, if other factors remain as they are now.

It was the price hike in petroleum products which had catapulted inflation to double digit figures and it has never returned to single digit after that.

The Finance Ministry's statement also said, "In the primary articles group, the annual point to point inflation declined to 10.07 per cent, as compared to 10.79 per cent reported last week and 11.83 per cent for the week ." Out of total of 98 articles in the primary articles group, 19 articles have shown a decline in prices in the current week as compared to August 16, the statement said.

Prices of various articles including rice, maize, moong, masur, onions and potatoes declined during the week.

In the manufactured group's category, there was no increase in prices of 296 items out of total of 318 commodities, the Finance Ministry added.

Analysts saw a status quo in the RBI's interest rate policy, even if inflation continues to decline.

Interest rates have hardened in the past few months as the central bank increased Cash Reserve Ratio (CRR) and short-term lending (Repo) rate by 1.5 per cent and 1.25 per cent respectively since April to tame inflation.

Earlier in the week, Reserve Bank's new Governor D Subbarao had defended the tight monetary policy.

"Not tightening the monetary policy...Would have eroded confidence in the economy," he had said.

Meanwhile, inflation for the week ended July 18 was revised to 12.19 per cent from the provisional estimate of 11.91 per cent.

(Source:  Internet)