All three major commodity groups see decline in prices.
The inflation rate as measured by the wholesale price index (WPI) has fallen to a 10-month low of 5.24 per cent for the week ended January 2, raising hopes that the central bank will further reduce key interest rate to boost demand in the economy.
The headline inflation rate dropped by 0.67 percentage point from the previous week’s 5.91 per cent. It was 4.26 per cent in the corresponding week a year ago.
All three major commodity groups — primary articles, fuel and manufactured products — reported drop in the inflation rate. Also, for the second consecutive week, food inflation, which was rising even as overall inflation was coming down, dropped to 9.52 per cent, compared with 9.95 per cent in the previous week.
“The aggressive cut in key interest rates by the RBI (Reserve Bank of India) had factored in a low inflation rate,” said DK Joshi, economist with Crisil Ltd, a ratings and advisory firm. “There is still some room for a rate cut but the RBI will move ahead slowly,” Joshi added.
Sharp fall in commodity and fuel prices in the last three months because of slump in demand in major economies has helped inflation fall from a historic high of 12.9 per cent in the first week of August last year.
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Ashok Chawla, secretary of the economic affairs department in the finance ministry, said the government expected the rate to come down to 3-4 per cent by end of the current fiscal. The RBI’s comfort level is 5 per cent.
“India has been relatively slower than its export-dependent neighbouring economies in feeling the pinch of the global downturn. GDP growth in the South Asian giant remained robust in the September quarter but a sharp slowdown is expected to have begun in the final three months of 2008 as global financial turmoil intensified,” wrote Sherman Chan, economist with Moody’s Economy.com, in a note released today.
The inflation rate for ‘primary articles’ fell to 10.9 per cent compared with 11.6 per cent last week. Within this group, inflation in the food and non-food sub-groups declined to 9.5 and 9.6 per cent, respectively.
In ‘fuel and power’, the inflation rate declined to -1.3 per cent, compared with - 0.7 in the previous week. In ‘manufactured products’, the rate decreased to 5.6 per cent, compared with 6.2 per cent in the previous week.
The final estimate of inflation for the week ended November 21 last year has been revised downwards to 8.71 per cent as against the provisional estimate of 8.9 per cent which was released two months back.