Inflation down at 5.4 per cent

Annual inflation eased below 5.5 per cent for the first time in nearly four months.

While this represents the third consecutive weekly fall in inflation, the data have prompted fears that the central bank may tighten interest rates again because prices of major commodities have risen, implying that recent monetary and fiscal measures have not yielded immediate results.

The wholesale price index (WPI) based inflation declined to 5.44 per cent for the week ended May 5, down from 5.66 per cent the previous week.

This decline is mainly attributed to the base effect, rather than an actual easing of prices of the three commodity groups "" primary articles, fuel and power, and manufactured products "" that comprise the WPI. 
 

WHOLESALE INCREASE (The movement of the index for the various commodity groups)
Week ended	5 May	29 April	21 April
Primary Articles (22.02%)	219.6	218.8	219.2
Fuel, Power, Light &  Lubricant (14.23%)	321.8	320.5	320.5
Manufactured Products (63.75%)	183.9	183.7	183.5
(Figures in brackets are weights)

"Whatever the concerns were "" vegetable prices, fruits, cement prices, edible oil prices "" the major contributors, their prices are still at high levels," said Rupa Rege Nitsure, chief economist at Mumbai-based Bank of Baroda.

"So, in no way can we take any comfort from this number. Monetary tightening will continue, and I am expecting a 25 basis point hike in the repo rate in the next policy review".

The RBI had increased the cash reserve ratio by 25 basis points each on six occasions from December 23 last, with the latest hike coming into effect on April 28.

Since inflation is calculated by comparing the weekly WPI of the current year with the corresponding week in the previous year (the base year), a higher inflation level last year would result in the current rate of inflation appearing lower, or vice-versa.

The WPI for all commodities increased to 211.4 for the week ended May 5, from 210.9 a week ago. Last year, during the same period, WPI increased to 200.5 from 199.6.

"I am worried about the rate of increase in the prices of major commodity groups. It is unexpected. However, the international prices for industrial commodities have gone up in recent times, which must have translated into higher prices in India," said S Bhattacharya, vice-president, business and economic research, UTI Bank.

"There is a seasonal element which may have contributed to the increase in prices of primary articles. However, inflation is not coming down as fast as expected," said DK Joshi, principal economist, Crisil. "One cannot rule out RBI intervention. All depends on how inflation plays out in the coming weeks," he added.

The index for primary articles increased by 0.4 per cent, with prices of eggs (8 per cent), fish-marine (5 per cent), masur (4 per cent) and fruits and vegetables (3 per cent) increasing.

Prices of condiments and spices, moong (2 per cent) and barley (1 per cent) declined. In the non-food articles category, prices of niger seed (5 per cent), sunflower (3 per cent), and raw cotton (2 per cent) declined.