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Thursday, February 19, 2009

Inflation at 3.92%

Providing room for rate cut

The official Wholesale Price Index for All Commodities (Base: 1993-94 = 100) for the week ended 7 February 2009 stood at 3.92% as compared to 4.39% for the previous week and 4.98% during the corresponding week of the previous year. It was the index's lowest annual rise since 3.83% on 29 December 2007.

The manufacturing sector, which has highest weightage in total WPI, declined 0.4% to 199.7 from 200.6 for the previous week. The major contributors to the fall in manufacturing segment were: leather and leather product; basic metals alloys and metal products, which registered a fall for the week ended 7 February 2009 compared with a week ago. Also the textile industry, one of the major contributors of manufacturing index declined 0.7% to 139.0 from 140.0 for the previous week due to lower prices of cotton yarn-cones (4%) and cotton yarn-hanks (1%). Meanwhile, the prices of cotton knitted garments (4%) and texturised yarn and hessian cloth (2% each) moved up.

However the index of food product, chemical and chemical product, non-metallic mineral products grew up for the week ended 7 February 2009 compared with a previous week.

The primary article index, which comprises food and non-food articles, registered a fall of mere 0.2% for the week ended 7 February 2009 as against previous week due to decline in non-food articles group. However the index for food articles group rose 0.1% to 244.9 from 244.7 for the previous week due to higher prices of moong, masur, urad and arhar (2% each) and gram and maize (1% each).

Going further the index for fuel, power, light and lubricants group rose 0.5% to 323.5 from 321.8 for the previous week mainly due to higher prices of naphtha (10%) and furnace oil (5%). However, the prices of aviation turbine fuel (5%) and light diesel oil (1%) declined. The government reduced retail fuel prices on 28 January 2009 for the second time in less than two months amid fall in crude oil prices.

The wholesale price index sustained on downward path and moved towards the RBI's projection set for March 2009. The plunge in industrial production in December 2008, negative growth in export sector and surge in fiscal deficit craft an anxiety for the growth projection.

To arrest the slowdown and boost up the industrial activity, apex bank of India may go for more round of rate cut. The recent and rapid downward inflation trend is providing the central bank

with headroom for further monetary easing. The RBI governor has also indicated the same saying that there is room for cutting interest rates further as the impact of the global recession on India was sharper than expected.

source: Capital Market

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