Inflation falls to 11-month low of 7.48%

Headline inflation, measured by the Wholesale Price Index (WPI), moderated to an 11-month low of 7.48 per cent in November owing to deceleration in food inflation and high base effect.

Wholesale inflation has maintained a broadly moderating trend since April. The inflation rate was at 4.5 per cent during the corresponding period last year and at 8.58 per cent in October.

The moderation in the rate is in line with expectations of experts and analysts, who believe inflation would moderate further, backed by the statistical base effect in the coming months.

Finance Minister Pranab Mukherjee has expressed hope that the inflation rate will come down to six per cent, coinciding with the Reserve Bank of India (RBI) target by the end of the financial year. “I hope (it) will be around six per cent by March …food inflation has become very moderate.”

Planning Commission Deputy Chairman Montek Singh Ahluwalia said inflation has come down to a comfortable level. “Inflation is comfortable. I think it does vindicate the government’s proposition that we are not facing an accelerating inflation or inflation that is out of control.”

Analysts said even though inflation, assisted by the base effect, may come down to 6-6.5 per cent, it is expected to turn “sticky” again.

“While the base effect will result in the numbers coming in the 6-6.5 per cent range by March- end, we maintain our view that prices in 2011 are likely to remain sticky,” said Rohini Malkani and Anushka Shah, economists with Citigroup India.

Malkani and Shah said inflation will remain a worry for policy makers due to higher crude prices in 2011. This will have a knock-on impact on manufactured and non food products, and primary articles will continue to remain at elevated levels due to growing dominance of structural factors. Moreover, Malkani said, unseasonal rains have impacted sowing of the winter crop and that might result in supply side concerns, going ahead.

Food inflation stood at 9.4 per cent in November compared to 14.1 per cent in the previous month and 16.73 per cent during the corresponding period in 2009. Inflation for primary articles also moderated to 13 per cent as compared to 16.7 per cent in October and fuel price inflation declined to 10.3 per cent compared to 11 per cent in the previous month.

However, a Deutsche Bank research note said once the data is adjusted for seasonality and base effect, the trend looks “worrisome”.

“Inflation momentum has been rising in recent months and the weekly trend of prices reveals sustained rise of a broad range of prices. Prices of processed foods, sugar and non-food articles are on a strong uptrend,” observed Deutsche Bank in its research note.