Inflation nears double-digit mark in march

Oil prices to be major worry in coming months, say analysts.

The headline inflation rate, as measured by the wholesale price index (WPI), hovered around the double-digit mark, at 9.9 per cent, for March, marginally lower than market expectations.

The inflation rate stood at 9.89 per cent in February and at 1.20 per cent in the corresponding period last year. Analysts had expected that the rise in fuel prices during the month, coupled with high food inflation, would push the inflation rate to double digits. However, food prices have stabilised during March, keeping the inflation a tad lower than 10 per cent.

The average inflation rate for 2009-10 stands at 3.8 per cent according to provisional estimates. Policy makers and experts, however, continue to be apprehensive. “The apprehension was that it might reach the double-digit figure. So it has moderated to some extent, but you will have to see that this pressure will continue till June,” said Finance Minister Pranab Mukherjee.

Analysts say oil prices will be the major worry for inflation in the coming months. These would exert pressure on the index in all the three categories — fuel, manufactured products and food.

Experts maintain that the Reserve Bank of India (RBI) will resort to monetary tightening measures in the fourth quarter monetary policy review on April 20 by increasing policy rates by 25-50 basis points. “The wholesale price inflation, on the downside in March, surprised us by not touching the double digits, as expected by the market and us. However, these developments are unlikely to stop RBI from raising key rates again. Chances are that the increase will be of 25 basis points and not 50,” said Robert Prior-Wandesforde, senior Asian economist, HSBC.

Inflation is still high and is becoming more broad-based every month. “The number, even as it is below market expectations, is still high. Consumers are still suffering and marginal decline on a month-on-month basis is not significant. The inflation rate will be in double digits till May, when it will start moderating due to base effect and easing food prices,” said Bank of Baroda Chief Economist Rupa Rege Nitsure. She expects RBI to increase repo and reverse repo rates by 50 basis points each, with no change in the cash reserve ratio (CRR).

Prime Minister’s Economic Advisory Council (PMEAC) Member Suman K Bery said: “It is important for them (RBI) to signal concerns for inflation. I do expect some tightening in Tuesday’s monetary policy.”

The rate of food inflation in March stood at 16.65 per cent, marginally lower than 17.79 per cent in February. It was at 7.54 per cent in the corresponding month last year. Rate of rise in prices of primary articles, which include food as well as non-food commodities, slowed down in March and the inflation rate stood at 14.10 per cent, against 15.14 per cent the previous month.

The inflation rate for the manufactured products also showed signs of moderation and stood at 7.13 per cent on an annual basis in March, compared to 7.42 per cent in February. The inflation rate for the fuel category, however rose on expected lines, standing at 12.71 per cent in March, compared to an annual inflation rate of 10.19 per cent in the previous month.

The final inflation rate for the month of January 2010 was revised upwards to 9.44 per cent, against an earlier provisional estimate of 8.56 per cent.
 

‘I will not be surprised if it (inflation) reaches double digits in March. But, in the past, we have lived with high rates’
Finance Minister 
Pranab Mukherjee
in the Rajya Sabha on March 17

‘In March, I would expect roughly the same kind of inflation that you have seen (in February). It begins to slow down a little bit from April, and by May-June, it slows down quite a bit. In the second half of the calendar year, I would expect it to be below 5%’
Chief Economic Advisor 
Kaushik Basu in an interview with CNBC-TV 18 on March 16

‘March will have very high inflation because of the base effect and the fuel price increase. Surely, it will be in double digits’

Chief Statistician Pronab Sen
on March 21 in New Delhi

‘By March, inflation is likely to grow a little over 7%’

Prime Minister's Economic Advisory
Council Chairman C Rangarajan
on January 3 in New Delhi

‘I believe that inflation will moderate in the weeks and months ahead’


RBI Governor D Subbarao
on March 9 in New Delhi

‘In the next two-three months, the overall inflation will come down, as the food prices are declining. I do not think it matters if inflation reaches the double-digit mark in one week…’
Planning Commission 
Deputy Chairman 
Montek Singh Ahluwalia
on March 27 in Chandigarh

Wholesale food inflation for the week ended April 3 stood at 17.22 per cent, down from 17.7 per cent the previous week. Inflation rate of fuel items for the week stood at 12.43 per cent.