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| Inflation touches 16-month high of 9.89% |
| BS Reporter / New Delhi Mar 16, 2010, 01:04 IST |
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The headline inflation rate, as measured by the wholesale price index (WPI), touched a 16-month high of 9.89 per cent in February and is certain to be in double digits on a point-on-point basis in March.
 The rise in inflation rate was primarily driven by fuel prices and the low base effect. The overall inflation is set to accelerate in the current month due to the increase in excise duty, which will push up the index in March.
With the prospect of double-digit inflation and with the growth in industrial output touching 16.7 per cent, analysts expect the Reserve Bank of India (RBI) to raise policy rates like repo and reverse repo by 25-50 basis points in the fourth-quarter monetary policy review on April 20. “Given such a high rate of inflation, it is quite possible that RBI would raise the rates in the fourth quarter policy review. Moreover, as the market has already factored in a 25-50-basis-point increase in rates, there might be a higher increase,” said Sumita Kale, chief economist, Indicus Analytics.
Finance Minister Pranab Mukherjee had said after the Budget that the increase in duty rates would lead to about 0.41 per cent rise in the overall inflation rate.
According to Chief Statistician Pronab Sen, the inflation rate, at 8.56 per cent in January, had breached RBI’s projection of point-on-point inflation rate of 8.5 per cent by March. During the corresponding period in 2009, it was 3.50 per cent. For December, the final rate was revised to 8.1 per cent from an earlier provisional estimate 7.31 per cent.
“I would expect another month of inflation roughly like this because the base effect is going to be very strong... after that, inflation should begin to die down,” said Chief Economic Advisor Kaushik Basu.
With the inflation spreading to fuel and manufactured category and structural problems playing a greater role in creating inflationary pressures, analysts say inflation in 2010-11 will come down from double-digit levels, but will continue to be at a high single-digit level.
“While rising prices are partly driven by cyclical factors, they have also been further augmented by structural distortions. Assuming normal monsoons, fading base effect, and a healthy winter harvest, we expect the inflation rate to come off from double-digit levels. However, given the growing influence of structural factors, WPI would likely remain in high single digits rather than the preferred range of 5 per cent. This, in turn, could potentially keep the rate structure higher,” said Rohini Malkani, economist, Citigroup India.
The Inflation rate for primary articles stood at 15.54 per cent in February, as against 6.85 per cent during the corresponding month in 2009. However, on a month-on-month basis, the prices of primary articles registered a decline of 0.88 per cent. Fuel prices showed significant increase and registered an inflation rate of 10.19 per cent, against a decline of 3.40 per cent last year. Prices of high-speed diesel oil grew at the fastest rate, of 8.85 per cent, in the fuel category. On a monthly basis, fuel prices rose at a the rate of 1.54 per cent in February.
The Inflation rate for manufactured products stood at 7.42 per cent in the month under consideration, against 4.78 per cent in the corresponding period last year. On a month-on-month basis, prices of manufactured products increased at the rate of 0.61 per cent.
Inflation for cereals and pulses on a year-on-year basis stood at 11.69 per cent and 35.58 per cent, respectively, against 12.66 per cent and 16.88 per cent in the corresponding period last year. Price of food articles on a month-on-month basis showed a marginal decline of 0.41 per cent in February. Sugar prices continue to be high, with a year-on-year inflation rate of 55.47 per cent.
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