Inflation falls to 11.8%

India’s inflation rate as measured by wholesale price index (WPI) stood at 11.8 per cent for the week ended September 27 this year, as against 11.99 per cent a week-ago when the inflation rate fell below the 12 per cent mark for the first time in nearly three months.

The decline in inflation rate was primarily due to fall in prices of primary articles like bajra, maize, cotton and onion, and manufactured products like cotton yarn, polyester staple fibre and cement.

The annual rate of inflation stood at 3.36 per cent as on September 29, 2007
However, the inflation of 30 essential commodities closely monitored by the government rose by 4 basis points (one basis point is one-hundredth of a percentage point). The annual rate of inflation - which measures the changes in prices in the last 52 weeks - was 7.82 per cent as on September 27, 2008.

Despite the decline, the inflation rate is still way above the Reserve Bank of India’s (RBI) target rate of around 5 per cent. As a result, economists are divided whether the central bank should cut the repo rate - the rate at which RBI lends to banks - in the current scenario.

In the last seven days, RBI has cut the cash reserve ratio (CRR) - the amount the banks keep with the RBI - by 150 basis points in response to liquidity crunch in the money market. This alone is expected to pump Rs 60,000 crore into the system and the central government has also cancelled the proposed bond issue which would have sucked money out of the system.

The final wholesale inflation numbers for the week ended August 2, 2008 has been revised upwards by 47 basis points to 12.91 per cent as against 12.44 per cent.