March inflation at 40-month low of 5.96%

Vegetables see deflation; core inflation declines to three-year low

A fall in vegetable prices, among other factors, made Wholesale Price Index (WPI)-based inflation hit a 40-month low of 5.96 per cent in March, compared with 6.84 per cent in February, much lower than the Reserve Bank of India (RBI)'s projection of 6.8 per cent.

Analysts had expected a fall in the rate of price rise in March but not to below six per cent. This is the lowest figure since November 2009, when inflation was 4.73 per cent. In March 2012, inflation was 7.69 per cent.

The latest decline has led to demands from various quarters for a cut in the policy rate by RBI in its May monetary policy to perk the growth rate, which fell to an estimated decadal-low of five per cent in 2012-13. The new Confederation of Indian Industry chief, S Gopalakrishnan, addressing his first press conference after assuming the charge, called for a 100 basis-point cut in the policy rate in the current financial year, with an "immediate" 50-basis point (bp) cut.

However, there was a catch in the official provisional numbers released on Monday for March. The January inflation figure was revised to 7.31 per cent from the provisional estimate of 6.62 per cent. Inflation averaged 7.3 per cent in 2012-13, compared with 8.9 per cent in the previous financial year.

This prompted Planning Commission Deputy Chairman Montek Singh Ahluwalia to say, "The fact that this is the first time (in over three years) it is below six per cent is very important and I hope that we will continue to see that often."

Food inflation, a cause of worry for policymakers, declined to 8.73 per cent in March from 11.38 per cent in February. Besides, prices of vegetables fell 0.95 per cent in March.

However, most protein-based items, such as pulses and non-vegetarian items, still saw inflation in double digits, though the rate of price rise came down. Fuel and power showed a marginal decline, as the rate of price rise in diesel rose to 21.22 per cent in March against 19.19 per cent in February. Inflation in manufactured items, which constitutes 65 per cent of the WPI, came down to 4.07 per cent in March from 4.51 per cent in February.

Core inflation (manufactured items minus food products), which many say is what RBI should focus on while deciding the policy rate, fell to a 36-month low of 3.41 per cent in March against 3.77 per cent in February.

Retail price inflation is still in double digits, though it moderated in March 2013. It fell from 10.91 per cent in February to 10.39 per cent, and averaged 10.20 per cent in 2012-13.

To a query as to why RBI should cut the rate when retail inflation is in double digits, the CII president said the issue of retail price pressures should be addressed through supply-side measures.