Double-digit inflation was found only in five product categories in the time period when India’s headline inflation was above the 10 per cent mark for five months in the current year. Inflation moved into double digits in June, peaked at 12.9 per cent in August and fell below the 10 per cent mark for the week ended November 1.
These are non-food articles, minerals, food products, mineral oils and basic metals as well as metal products. Free priced petroleum products like aviation turbine fuel, fuel oil and naphtha come under mineral oils. All told, the wholesale price index (WPI) comprises 17 categories and these five account for a little over a third of the index.
Inflation in these product categories soared into double digits, thanks to strong global demand, especially from emerging markets like China and India. There has also been speculation that hedge funds the world over had built strong positions on these commodities in anticipation of a further rise. The prices have, however, moved in the other direction since then.
According to data collated by the Central Statistical Organisation, the inflation in these five product categories was in the range of 11.05-52.67 per cent. “In some cases, the price increase was around 40 per cent,” said Dharmakirti Joshi, economist with Crisil, a ratings and advisory firm.
As the five categories have a weight of 33.8 per cent in the WPI, this means that the cumulative inflation in the other 12 product categories was in single digits (below 10 per cent).
With international crude oil and metal prices coming down significantly in the last two months, inflation has come down below the double-digit mark of 8.98 per cent for the week ended November 1.
| HIGH FIVE | |
| Sub-group | Weight in WPI (in %) |
| Non- food articles | 6.1 |
| Minerals | 0.5 |
| Mineral oils | 7.0 |
| Food products | 11.5 |
| Basic metals and metal products | 8.3 |
| Source: CII's State of the Economy- October 2008 | |
The Confederation of Indian Industry (CII), in a recent report, said: “Already some softening in headline inflation number is visible due to lower prices of fuel products whose prices are not administered such as ATF. However, for inflation to decline substantially, we have to wait till the base effect wears off. This is likely to be visible by January 2009.”
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In a recent interview, CII director-general Chandrajit Banerjee said the Reserve Bank of India (RBI) should reduce its key interest rates, as the threat of inflation has eased because of sharp correction in oil and metal prices. The central bank tightened its monetary policy to cool the inflation.
Agreeing that threat of higher inflation rate has eased, Joshi of Crisil said the outlook for inflation has changed dramatically with a sharp fall in latest numbers.