Inflation falls to 9.97% in July

After being in double digits for five months in a row, the wholesale inflation rate came down to single digits, at 9.97 per cent, in July, primarily due to a decline in prices of food articles during the month.

Finance Minister Pranab Mukherjee expressed optimism that the drop in prices would continue, while Planning Commission Deputy Chairman Montek Singh Ahluwalia said the inflation rate would reach 6 per cent by the end of this calendar year.

Mukherjee pointed out, besides seasonal factors and the base effect, the monetary policy steps taken by the Reserve Bank of India were having impact on inflation. “Of course, inflation will moderate… policy rates had some impact but there are also base factors,” Mukherjee said.

The headline inflation rate, as measured by the Wholesale Price Index (WPI) was at -0.54 per cent in the corresponding month in 2009 and at 10.55 per cent in May.

However, there has been a significant upward revision in the inflation rate, to 11.14 per cent, in May, from an earlier provisional estimate of 10.16 per cent. Despite the upward revision, the overall trend is one of moderation and analysts said inflation had peaked at 11.23 per cent in April.

“We think inflation has peaked on a yearly basis and will trend down gradually as the base normalises to under 6 per cent by end of the financial year. Sequentially, we expect food prices to soften further over the next few months and the pressure on core inflation is abating,” Pranjul Bhandari and Tushar Poddar, economists with Goldman Sachs, said in a research note.

As inflation rates in the primary articles and manufactured products category registered deceleration during the month, fuel prices rose significantly due to increase in petrol prices affective from June.

“In July, we had seen steady deceleration in food inflation. The fall in rate is partly due to that and the statistical base effect. Sequentially, however, it may not have eased that much,” said Bank of Baroda Chief Economist Rupa Rege-Nitsure.

In July, the inflation rate for the primary article category rose by 1.9 per cent on a monthly basis, while it was up 15 per cent on a yearly basis. Food price inflation eased to 10.3 per cent on a yearly basis in July, against 14.6 per cent in June. The fuel component rose by 3.2 per cent on a monthly basis and the annual rate of inflation stood at 14.3 per cent. Contrary to expectations, the inflation rate for the manufactured products category registered a monthly decline of 0.1 per cent, while the annual inflation rate stood at 6.2 per cent.