RBI can consider low inflation while deciding key rate: Montek

Satisfied over easing of inflation, Plan panel Deputy Chairman Montek Singh Ahluwalia today said the Reserve Bank should take into account improvement in price situation while deciding on interest rate cut in its mid-quarter policy review due on Monday to boost growth.

"Certainly, 4.7% for the month is better than we had expected. I think it does indicate that there is distinct downturn on inflation which is welcome," Ahluwalia told reporters.

The Wholesale Price Index-based on inflation fell to 4.7% in May, driven mainly by decline in prices of manufactured items, even as prices of food articles inched up.

Inflation based on the Wholesale Price Index (WPI) stood at 4.89% in April. In May, 2012, it was 7.55%.

Asked whether RBI should consider the easing of inflation in its mid-quarter review next week, he said, "They should certainly consider it because it is very clear that the underline inflationary pressure is softening."

The industrial output in April showed a very modest growth of 2.3%, down from 3.4% in March.

According to Ahluwalia, food inflation in the longer period is also coming down. Inflation in food articles category, which has a 14.34% share in the WPI basket, rose to 8.25% in May. Inflation in this category was at 6.08% in April.

"If you look at the components of inflation, the food prices increase has slightly gone up. This is the base level effect I was referring to earlier," Ahluwalia explained.

"Inflation is softening. I think the number is lower than it was last year. The good news is that the non-food inflation has really gone down much more than you thought it would. I think the base level effect will wear out in the years ahead," he added.

The non-food articles category, which include fibre, oil seeds and minerals, saw sharp decline in inflation to 4.88% in May from 7.59% in April.