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Thursday, June 10, 2010

Food, non-food and fuel inflation rises further at end May 2010

Puts pressure on overall inflation for May 2010 

The weekly data on Wholesale Price Index (WPI) based inflation for Primary articles and fuel product has shown further up tick in the week ended 29 May 2010. The index for Primary articles rose by 0.5% from the previous week's level, with the food articles index rising 0.4% and that of non-food articles spurting 1.0%. The index for fuel, power, light and lubricants rose by 0.1% from the previous week's level, while its inflation increased 14.2% due to higher prices of lubricants (8%). 

The inflation for primary articles increased to 17.2% in the week ended 29 May from 16.9% in the previous. Among the primary articles, the inflation for food articles increased to 16.7% due to higher prices of beef & buffalo meat (8%), fish-marine (3%) and urad, fruits & vegetables, arhar and moong (1% each). The inflation for non-food articles surged to 18.0% from 16.9% in the previous week due to higher prices of fodder and raw rubber (6% each), raw cotton (3%), castor seed (2%) and raw silk, groundnut seed and cotton seed (1% each). 

The better prospect for southwest monsoon (June-September) 2010 augurs well for moderation of food articles and products prices. However, the Equipped Group of Ministers has deferred the fuel prices hike in its meeting held on 07 June 2010 to nearby next meeting. Thus, the possible hike in fuel prices may negate the impact of possible deceleration in food prices and may keep overall inflation at elevated level. 

The WPI based inflation for all commodities increased 9.6% in April 2010 compared to 9.9% and 10.1% increase during March and February 2010. The monthly inflation data for May 2010 is due to be released on 14 June 2010. Based in the weekly data available for primary articles and fuel products, the inflation for these two groups has increased to 16.6% and 13.0%, respectively in May 2010 from 13.9% and 12.6% in April 2010. Thus, the overall WPI inflation for May 2010 is most unlikely to ease below 9.6% level. 

The Reserve Bank of India (RBI) is closely watching the movement in inflation to react in a timely manner. RBI has already raised CRR and Policy rates by 100 bps and 50 bps, respectively so far in 2010. The worries over Europe's sovereign debt crisis have dampened hopes of inter-meeting monetary policy action. However, the finance minister has commented that India would not restrain further rate hikes.

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