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Thursday, July 23, 2009

Inflation at - 1.17%

Negative but set to grow

India is continuously heading for negative inflation number. The official Wholesale Price Index for All Commodities for the week ended 11th July 2009 rose by 0.1 percent to 236.7 from 236.4 for the previous week. The annual rate of inflation, calculated on point-to-point basis, stood at -1.17 percent for the week ended 11 July 2009 compared with week ended 12 July 2008. However the index of primary article recorded growth on week on week basis. The index of primary article rose by 0.7 percent to 260.3 from 258.5 for the previous week. In primary article the index for 'Food Articles' group rose by 0.9 percent to 255.9 from 253.6 for the previous week due to higher prices of fish-marine (9%), fruits & vegetables (3%) and condiments & spices, maize and rice (1% each). However, the prices of tea and wheat (1% each) declined.

The index for 'Non-Food Articles' group rose by 0.3 percent to 238.4 from 237.7 for the previous week due to higher prices of copra (3%), raw silk (2%), soyabean, raw cotton and linseed (1% each). However, the prices of raw wool (2%) and sunflower, raw rubber and gingelly seed (1% each) declined.

The index for fuel and power group rose by 0.1 percent to 338.4 from 338.2 for the previous week due to higher prices of aviation turbine fuel (7%).

One of the major index in India's WPI is manufactured product. The index for this major group declined by 0.1 percent to 205.9 (Provisional) from 206.1 for the previous week.

In manufactured product the index for 'Food Products' group declined by 0.4 percent to 233. from 234.0 for the previous week due to lower prices of imported edible oil (6%), oil cakes (2%) and rice bran oil and gingelly oil (1% each). However, the prices of gur and groundnut oil (1% each) moved up.

The index for 'Textiles' group rose by 0.1 percent to 143.7 (Provisional) from 143.6 (Provisional) for the previous week due to higher prices of texturised yarn (5%). However, the prices of hessian cloth and hessian & sacking bags (1% each) declined.

The index for 'Rubber & Plastic Products' group rose by 0.2 percent to 169.2 (Provisional) from 168.9 (Provisional) for the previous week due to higher prices of pvc fitting & accessories and pvc pipes & tubings (3%). However, the prices of plastic items (6%) declined.

The index for 'Chemicals & Chemical Products' group declined marginally to 227.0 (Provisional) from 227.1 (Provisional) for the previous week due to lower prices of liquid chlorine (2%) and caustic soda (sodium hydroxide) and acid(all kinds) (1% each).

The index for 'Basic Metals Alloys & Metal Products' group rose marginally to 255.0 (Provisional) from 254.9 (Provisional) for the previous week due to higher prices of brass sheets & strips (28%). However, the prices of steel ingots (2%) and lead ingots (1%) declined.

The index for 'Machinery & Machine Tools' group rose by 0.1 percent to 171.9 (Provisional) from 171.8 (Provisional) for the previous week due to higher prices of other cables and rubber insulated cables (1% each).

Constant negative growth in inflation and double-digit growth in consumer price index (CPI) is an irony of India's macro economy. Inflation, money supply and interest rate are interlinked. The current macro economy has given mixed framework for the same. Lower inflation preferably results in lower interest rate regime, which is not the case as of now. On other hand money supply is growing on and above 20% on year on year basis, which will push inflation up in long term. At this note, the apex bank is set to announce the first quarter review for economy on 28 July 2009 where we can expect upward revision in the projection for inflation.

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