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Thursday, April 16, 2009

Inflation – At 0.18%

No more concern but still cautious

The headline inflation in India measured by Wholesale price index fall 0.18% for the week ended 4 April 2009. By and large, inflation is no more a concern. However pressure still exists in the form of consumer price index, which is still running in double digits. Indian consumers are paying high prices for the essential commodities due to the higher prices of food articles.

The annual rate of inflation, calculated on point-to-point basis, stood at 0.18% for the week ended 04 April 2009 as compared to 0.26 % for the previous week and 7.71 % during the corresponding week of the previous year.

The index for manufacturing product group rose by 0.1 % to 200.5 from 200.3 for the previous week. The index for food product and chemicals and chemical products group rose by 0.6% and 0.1% respectively. However index for basic metals alloys and metal products group declined by 0.3 % to 255.1 from 255.9 for the previous week due to lower prices of basic pig iron and foundry pig iron (5% each), ms bars & rounds, steel wire, lead ingots and other iron steel (2% each) and steel wire ropes (1%). However, the prices of zinc (6%) and zinc ingots (1%) moved up.

Another major group that is primary article rose by 1.1 % to 247.6 from 245.0 for the previous week. The rise in food and non-food articles index resulted in surge in primary article index and put pressure on ultimate consumer who is facing higher prices for basic commodity. The index for food articles group rose by 1.2 % to 245.6 from 242.6 for the previous week due to higher prices of fruits & vegetables (6%), arhar (2%) and urad, moong and gram (1% each). However, the prices of tea (1%) declined. The index for non-food articles group rose by 0.7 % to 228.7 from 227.0 for the previous week due to higher prices of raw rubber (6%), raw cotton (3%) and raw silk (2%). However, the prices of rape & mustard seed (1%) declined.

The index of third major group that is fuel power and lubricant group rose by 0.5% to 322.6 from 320.9 for the previous week due to higher prices of aviation turbine fuel (12%), naphtha (8%), light diesel oil (3%) and bitumen (2%). However, the prices of furnace oil (1%) declined.

The rising consumer price index nullify's the positive impact of sharp fall in WPI as the end user is still facing price pressure due to surge in prices of food articles. The hike in minimum support price between April - March 2008 - 09 for various rabbi crops restrict CPI to fall down. Fall in production of sugarcane, oilseed and food grain put pressure on sugar and edible oil prices. In addition to this depreciation of rupee adversely affect the to the import cost of the commodities like edible oil and pulses.

In case of policy decision, the low inflation expectation, coupled with risks to economic growth, will prompt RBI to retain strong focus on growth then price stability. Nominal growth rate in inflation may allow RBI for more rate cut but higher CPI numbers may restrict the move. The Reserve Bank of India will release its annual monetary policy statement for the 2009/10 fiscal year (April/March) on April 21 2009. The focus of the policy will remain on growth assessment.

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