Inflation, as captured by the wholesale price index (WPI), grew at a slower pace of 8.9 per cent for the week ended November 8 due to fall in prices of petroleum and manufactured products. It had dipped to the single-digit level after a gap of five months to touch 8.98 per cent in the previous week.
However, inflation of primary articles went up by 65 basis points (one basis point is one-hundredth of a percentage point) to 11.66 per cent in the week up to November 8 this year, as compared to 11.01 per cent reported last week. Overall inflation was at 3.2 per cent in the corresponding week last year.
The finance ministry, in a press statement, said, “For the month of October 2008, the deseasonalised inflation for primary food articles showed some increase, though there was significant decline in inflation rate of manufactured food.”
However, inflation of 30 essential commodities, closely monitored by the finance minister, declined marginally to 7.6 per cent for the week ended November 8, as compared to 7.74 per cent in the previous week. “The outlook for inflation has changed dramatically with sharp dip in inflation reported last week (referring to week ended November 1),” said Dharmakirti Joshi, economist with Crisil Ltd, a ratings and advisory firm.
The index number on a week-on-week basis declined by 0.21 per cent to 235 as on November 8, 2008, reflecting that overall prices have come down. Three petroleum products — light diesel oil (11 per cent), furnace oil (9 per cent) and aviation turbine fuel (5 per cent) — declined the most under the ‘fuel’ category which has around 15 per cent weight in the index.
Despite the dip in headline inflation, the markets did not respond positively to the news. The benchmark Bombay Stock Exchange’s (BSEs) Sensex fell by 3.7 per cent — its lowest level in three years.
With inflation growing at a much slower pace in the last five weeks, economists expect India’s central bank to further reduce key interest rates to boost economic growth.
The Reserve Bank of India (RBI) had cut repo rate, the rate at which it lends to commercial banks, by 150 bps to 7.5 per cent since September 16, 2008. In addition, it has also reduced cash reserve ratio — the money banks keep with RBI — to 5.5 per cent. This action, according to economists, signaled RBI’s shift in priority from inflation targeting to promoting growth.
The final inflation number for the week ended September 13, 2008 has been revised upwards by 28 bps to 12.42 as compared to provisional estimate of 12.14 per cent. Final estimates are released two months after the initial numbers were announced.
Category-wise, the rate of inflation for ‘fuel and power’ declined to 8.21 per cent in the current week compared to 9.22 per cent reported in the previous week. In the case of ‘manufactured products’, the rate of inflation declined marginally to 8.02 per cent as compared to 8.06 per cent for the week ended November 1, 2008.
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Jaitley, however, cautioned things may go from bad to worse if the country gave a fractured mandate in the ensuing general elections