Look at mfg goods inflation before rate cut: PM advisory panel

Sounding a note of caution, the Prime Minister's economic advisory panel today said RBI should take into account inflation of manufactured goods, which has shown only marginal decline, while deciding to lower policy rates at its monetary review next week.

"The Reserve Bank, while framing its monetary policy, will have to take into account not only the decline in food inflation and the headline inflation, but also factor in the manufactured inflation," Chairman of the Prime Minister's Economic Advisory Council, C Rangarajan, told PTI.

His comments came after headline inflation, as measured by Wholesale Price Index (WPI), fell to a two-year low of 7.47% in December, from 9.11% in the previous month.

Rangarajan said more steps are required to further moderate the inflation.

"The decline in headline inflation is mainly on account of the fall in food inflation. However, the decline is very small. Further steps will be required (to control inflation)," he said, without giving more details.

As per the official data, prices of food items rose at a lower rate of 0.74 per in December, compared to 8.54% expansion in the previous month.

However, inflationary pressure continued in manufactured items, which which have a weight of around 65% in the WPI basket.

Prices of manufactured products, went up by 7.41% year-on-year in December, as against 7.70% in the previous month.

Earlier in the day, Finance Minister Pranab Mukherjee also said that inflation of manufactured goods continued to be a matter of concern but hoped that overall inflation would come down to 6-7% by March end.

"The manufactured inflation and inflation in the power group of items have also declined though only marginally, therefore, continued to be a cause of concern," Mukherjee said.

RBI is scheduled to announce its third quarterly economic policy review on January 24.

Barring December 2011, headline inflation had been above the 8% mark since January 2010, while it was above 9% since December of the same year.

The apex bank has already hiked key policy rates 13 times since March, 2010, to tame inflation. However, it went for a pause in rate hikes in November and hinted at loosening the tight monetary policy in future if inflation moderates.

India Inc has said the string of rate hikes, which have raised the cost of borrowing, has acted as a dampener to fresh investment and hindered growth.