Inflation slips at 12.34% amid food prices fall

The soaring inflation has been slowed down marginally for the second consecutive week from 12.40% for the week ended on August 16 to 12.34% for the week ended on August 23, though it is still high above the Reserve Bank’s tolerance level.

The latest wholesale price index (WPI)-based inflation data released on Thursday informed a marginal depreciation of 0.06% held on the back of slipping prices of essential commodities and food articles as the prices of Vegetables and fruits slowed down to two per cent, while that of tea slipped to three per cent. Last year, the inflation rate for the same week was at 3.94%, as per WPI reported.

This fresh release WPI report may give some relief to government, as now government can say that its efforts to tightening the inflation rate has now begun to work, and its far results can be seen on later WPI reports that to be released in next few months.

But, market analysts believe that it would be too hurry to say that inflation rate is now on downward path as the declining prices of crude oils in the international market must have affected the food prices, which has became the main reason of slipping down in the inflation rate.

The Reserve Bank of India (RBI) which aims to curb inflation rate into single digit by the end of March 2009 and later come down to 5% by the end of the year has reiterated that its move of tightening the monetary policy would continue. Thus, we can see another hike in Cash Reserve Ration (CRR) - the portion of cash that parks with the central bank-, the Repo Rate (the short-term interest rate on which banks borrow the money from the Central Bank) and Prime Lending Rate (PLR) – the interest rate on which the lending banks distributes loan for long-term basis like home loan, auto loan – in the near future.

The Union Commerce Minister Kamal Nath on the latest WPI report said, “We are down to 12.34 per cent. There is a downward movement. With the measures that we had taken, results are yielding and it will reduce more in future.” The Finance Minister P Chidambaram too expressed some relief on the latest inflation data.

Chidambaram commenting on this report said, “In the primary article group, out of a total of 98 articles, 18 have shown a decline in prices in the current week as compared to August 16, 2008. These include rice, jowar, moong, masur, arhar and urad, tomatoes, groundnut, mustard, caster and linseed, marine fish and raw rubber while another 54 articles have shown no increase in prices.”

‘In the commodity group, prices of all 19 commodities remain unchanged in the current week while in the ‘manufactured product group’ out of 318 commodities, 294 have shown no increment in the prices over the last week while only 17 products particularly sugar, hessian bags, mustard and groundnut oil, zinc and lead ingots, deoiled and mustard cake, caustic soda, nylon filament yarn, cast iron spun pipes, newsprint and white printing paper and acids witnessed an increase in prices.’

The minister also added that even seven commodities- edible oils (rice bran, cottonseed, mustard and gingelly oils), groundnut oil cake, zinc and synthetic yarn- become cheaper this week.

Speaking over the 30 essential commodities price index, FM said, “Inflation of 30 essential commodities also declined to 6.90 per cent as on the week ending August 23, 2008 from 7.24 per cent reported in the earlier week. Decline in the prices of rice, most of the pulses and mustard oil resulted in moderation of inflation rate for essential commodities.”

According to WPI data, the primary article group that comprises from food articles and non-food articles group slid by 0.4% in the comparison of previous week’s data on the basis of index depreciation in ‘Food Article’ group by 0.8% while the index of ‘Non-Food’ article group rose by 0.4%.

Similar, in the manufactured product group, the index for this major group gone up by 0.2% on the basis of ‘food product’ group rose by 0.2%, ‘Paper & Paper Products’ group increased by 0.2 percent, ‘Chemicals & Chemical Products’ group rose by 0.5, ‘Basic Metals, Alloys & Metal Products’ group costlier by 0.4 percent and ‘Transport, Equipment & Parts' group surge by 0.2 percent’.

The Final Index for all the commodities for the week ended on June 28, 2008 has stood at 12.03 percent as against 11.89 percent (Provisional) reported earlier vide press note on July 11, 2008, as per WPI reported.