Inflation declines to 7.34 %

Falling prices of primary articles and manufactured products led to a decline in the inflation level based on the wholesale price index (WPI) during the week ended November 13.

The inflation rate fell to 7.34 per cent as against 7.76 per cent in the previous week and 5.42 per cent in the corresponding week last year.

"We expected inflation at around 7.6 per cent for the week, so 7.3 per cent is good. The fall is broadly because of food, cotton, edible oil and sugar. An inflation rate of 7.2-7.4 per cent is expected by December end," said Saumitra Chaudhuri, economic adviser, ICRA.

"Railway freight is treated as a service, so the hike in freight fares will not be directly reflected in the WPI," said DK Joshi, senior economist, Crisil.

"The railway freight component in prices is negligible, so it will have a marginal impact on inflation, unless companies try to piggyback on the hike to raise prices," Chaudhuri said.

"Inflation is not very easy to control and the government has been able to control it despite rising cement, steel and fuel prices. That gives confidence. The government raised the cash reserve ration (CRR), issued market stabilisation bonds and achieved positive results. Negative contributors are kicking in now. The fact the increase has been reversed is important," he added.

However, Joshi did not read much into the dip in inflation. It is primarily because of the base effect. The week ended November 8, 2003, saw a dip in inflation, so the corresponding week this year saw a slight rise.

"Also, nothing fundamental has happened to make manufacturing inflation fall. Diesel prices are up as is demand. The slight decrease in metal products' inflation could have led to a fall in the manufacturing inflation," he added.

The inflation rate based on the final index for the week ending September 18 was 7.86 per cent as against 7.8 per cent reported on the basis of the provisional index.