Inflation rises to 0.31 per cent

Headline inflation rate increased marginally to 0.31 per cent for the week ended March 21 this year, mainly because of increase in prices of manufactured products.

It was 7.9 per cent in the corresponding week last year and 0.27 per cent in the previous week ended March 14, 2009.

Experts say the reversal of downward trend is an aberration and predict the wholesale price index (WPI)-based inflation to drop below zero per cent mark in three to six weeks time.

“I expect the inflation rate to be in negative territory in three weeks time. It would stay there for at least three months because of base effect,” said D K Joshi, economist with Crisil Ltd, a ratings and advisory firm.

According to economists, the current low level of inflation provides an opportunity for the Reserve Bank of India to further cut key interest rates. Their argument being that near zero inflation is an indictor of slackening demand in the economy.

With lending rate for most companies staying well above 10 per cent mark, the real interest rate — which takes out the effect of inflation from nominal interest rate — has widened because of rapid fall in the inflation rate.

Industry lobby groups are demanding lower interest rate to revive economic growth in Asia’s third largest economy.

Inflation on common man items still high:
The inflation rate of items consumed by the common man like pulses and cereals continued to remain near or above double digit levels.

Sugar is showing an annual price increase close to 20 per cent. Pulses and cereals are above 9 per cent and 10 per cent mark, respectively.

Retail inflation as measured by the Consumer Price Index (CPI), has remained near double digit mark. For example, the CPI for industrial workers in February is at 9.6 per cent.

But retail inflation is expected to drop to 3-4 per cent mark by June this year, as food inflation spiked at the same time in 2008.

Food inflation, as measured in the WPI, was estimated at 6.29 per cent, compared with 7.11 per cent in the previous week.

On the outlook, Sumita Kale, economist with Delhi-based Indicus Analytics, an economic research organisation, said: “The reversal of downward revision of final inflation number from the preliminary estimate might signal reversal of trend (referring to inflation rate increasing).”

The preliminary estimate of WPI-based inflation is released with a time lag of two week. Thereafter, a final estimate is released after eight weeks.

The final inflation rate for week ended January 24, 2009 is revised downwards to 4.7 per cent as against an earlier estimate of 5.07 per cent.