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Thursday, April 23, 2009

Inflation at 0.26%

RBI has projected 4% WPI by end March 2010

The external and supply side factors along with demand pressures channelised the inflation trend during 2008-09. While the first half of 2008-09 warranted for adjustment of aggregate demand on an economy wide basis, the sharp fall in inflation in the second half facilitated aggressive monetary easing, which aim at arresting the economic slowdown which is projected to grow around 6% for end-March 2010.

The official Wholesale Price Index for All Commodities for the week ended 11 April 2009 rose by 0.3% to 228.8 from 228.2 for the previous week. The annual rate of inflation, calculated on point-to-point basis, stood at 0.26 % for the week ended 11 April 2009 as compared to 0.18 % for the previous week and 7.95 % during the corresponding week of the previous year.

The week on week rise in WPI was supported by high manufactured product and primary article index. The index of manufactured group rose by 0.2% to 200.9 from 200.5 for the previous week. In this the index for food products group rose by 0.7% to 221.8 from 220.2 for the previous week due to higher prices of imported edible oil (5%), oil cakes (3%) and rice bran oil, groundnut oil, salt, gingelly oil, sooji (rawa) and sugar (1% each). In addition to this index for textile, chemicals and chemical product, non metallic mineral product groups moves up for week ended 11 April 2009 compared to a week ago.

The index for primary articles group rose by 0.5% to 248.9 from 247.6 for the previous week. The index for food articles group rose by 0.5% to 246.8 from 245.6 for the previous week due to higher prices of tea (5%), bajra and jowar (3% each), fruits & vegetables (2%) and mutton and maize (1% each). In addition to this index for non-food articles group rose by 0.8 % to 230.5 from 228.7 for the previous week due to higher prices of raw rubber (10%) and groundnut seed (3%). However, the prices of niger seed (5%), fodder and raw silk (2% each) and copra (1%) declined.

The index for fuel, power light and lubricants index remained unchanged at its previous week's level of 322.6.

Keeping in view the global trend in commodity prices and domestic demand-supply balance, Reserve Bank of India has projected WPI inflation at around 4.0% by end-March 2010. In addition to this RBI also expects WPI to be in negative territory in the early part of 2009-10. However this should not be interpreted as deflation for policy purposes. The expected negative inflation in India has only a statistical significance and not reflection of domestic demand contraction. To sustain the domestic demand RBI has cut the key interest rates, which will facilitate lower lending rates by commercial banks and will ease pressure on real interest rates. Lower interest rate are always beneficial for industrial growth.

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