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| Inflation at 14-month low |
| BS Reporter / New Delhi Feb 27, 2009, 00:44 IST |
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Headline inflation rate fell to a 14-month low of 3.36 per cent for the week ended February 14 this year due to decline in prices of manufactured goods.
The sharp fall in annual inflation is being seen as an evidence of weakening economic demand, with economists expecting the Reserve Bank of India (RBI) to lower key interest rates to boost domestic demand.
Annual inflation rate was 3.92 per cent last week and 5.66 per cent in the corresponding week last year. Food inflation rate fell to the single digit level of 9.85 per cent compared with 10.4 per cent in the previous week.
The second-round impact of fuel price cuts is cited as one reason for accelerated fall in the Wholesale Price Index (WPI) - based inflation rate, which is expected to reduce even further after the recent cuts in excise duty and service tax.
“At this rate, WPI inflation will be below 1 per cent even without a diesel price (cut), which is being discussed currently,” said Sonal Varma, economist with Nomura. “We continue to expect the Reserve Bank of India will cut the repo and reverse repo rates by 50 basis points by March.”
The central bank had last cut repo (the rate at which it lends to banks) and reverse repo (the rate at which sucks liquidity) by one percentage point in the first week of January. This brought down the repo rate to 5.5 per cent, a reduction of 3.5 percentage points in less than four months.
In terms of contribution of commodity groups, primary articles with a weight of 22 per cent contributed 50.3 per cent of the annual inflation for the week ended February 14. Manufactured products, which have a weight of 64 per cent, contributed 77 per cent to the inflation rate. However, fuel group, whose inflation is in negative territory, meaning current year prices are lower than the year-ago prices, had - 25.8 contribution to the WPI-based inflation.
On a week-on-week basis, inflation in “primary articles” decreased to 7.3 per cent as against 8 per cent. In “manufactured products”, the annual price increase rate slowed down to 7.5 per cent as against 7.8 per cent. “Fuel and power” group rate stood at – 4 per cent as compared to – 3 per cent.
Meanwhile, the final inflation estimate for the week ended December 20, 2008 has been revised downwards to 5.91 per cent against a provisional estimate of 6.38 per cent made two months back.
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