Wednesday, 15 August 2012

Inflation near 3-year low, but RBI may be unmoved

Inflation near 3-year low, but RBI may be unmoved

Headline number below 7%, lowest since Nov 2009 food inflation still in double digits
Clean Media Correspondent

New Delhi, August 15 (CMC) Wholesale price index (WPI)-based inflation eased to a 32-month low, prompting industry to demand an interest rate reduction by the Reserve Bank of India (RBI). But economists and market analysts said the drop in the headline number might not be enough to convince the central bank.

That’s because though the overall WPI reading fell to 6.87 per cent from 7.25 per cent in June, core inflation (non-food manufactured items), the main indicator for the RBI to set its policy rate, went up to a five-month high of 5.45 per cent. Official data today showed manufactured inflation also rose to a five-month high of 5.58 per cent against five per cent in June.

Non-food primary (items found in raw form) inflation almost doubled to 13.05 per cent in July from 6.85 per cent on the back of a sharp rise in prices of fibres and oil seeds.

The rise in non-food inflation might be a result of supply constraints, considering that industrial production contracted 0.1 per cent in the first quarter of 2012-13.

•Overall inflation lowest since Nov 2009
•Exports contracted 5.05% while imports fell 6.47% in the first 4 months of FY12-13
•IIP contracted 0.1% in the first quarter of 2012-13 and 1.8% in June 2012
•GDP growth was at a 32-quarter low of 5.3% in Q4 of 2011-12 and a 9-year low of 6.5% in 2011-12

Food inflation declined but remained in double digits for the fifth month in a row. It was down to 10.05 per cent in July from 10.81 per cent in the previous month, largely because of a base effect. The weak monsoon remains an upside risk to food inflation numbers. The drought-like situation in some parts of the country may push up food inflation.

Fuel inflation fell to a 31-month low of 5.98 per cent in July compared to 10.27 per cent in June, largely due to a fall in the market-determined prices of fuels. “The upside risks to inflation remain, considering the drought in some areas of the country coupled with rise in crude oil prices and pressure on the government to administer market prices for fuel,” said Madan Sabnavis, chief economist, CARE Ratings.

Even as industry body CII and others called for a rate cut, the decision will be tough for the RBI. The signs so far do not indicate an economic recovery. Industrial production contracted 1.8 per cent in June, dragged down by a massive fall in capital goods (27 per cent).

1 comment:

  1. It is a temporary phase. Lets hope this trend continues in future too..