Grain arrival, base effect ease inflation

A higher base effect and fresh arrival of grain in the mandis brought down the wholesale price index-based inflation to 5.66 per cent in the week ended April 28, compared with 5.77 per cent the previous week. The latest data is in line with general expectations that inflation will moderate due to the recent monetary and supply side measures.

"There is a sharp increase in inflation level from 3.9 per cent for the week ended April 29, 2006 to 4.37 per cent for the week ended May 6, 2006. Given a steady wholesale price index (WPI) next week, inflation may come down to the 5.15-5.35 range in the week ended May 5, 2007," said Saugata Bhattacharya, vice-president, business and economic research, UTI Bank.

Price index for primary food articles declined by 0.2 per cent. The constituent food articles and non-food articles declined by 0.1 per cent and 0.5 per cent, respectively. Prices of bajra, gram and barley fell by 2 per cent each, whereas prices of poultry chicken, maize, wheat, and condiments and spices decreased by 1 per cent each. However, moong went up by 2 per cent, and masur, milk and arhar by 1 per cent each.

The crucial manufactured products index rose by 0.1 per cent due to higher prices of bread and buns (4 per cent), biscuits (3 per cent), pan masala (20 per cent), bidi (5 per cent), building bricks (22 per cent), ceramic tiles (4 per cent) and zinc (8 per cent).

The WPI-based inflation for the week ended March 3 was revised to 6.51 per cent from the provisional figure of 6.51 per cent. Average inflation in 2006-07 was 5.4 per cent.

The Reserve Bank of India has set a target of less than 4.5 per cent inflation for the financial year 2007-08. Finance Minister P Chidambaram had said that inflation will be contained within 4.5 per cent through the combination of recent supply side, monetary and fiscal measures.

The RBI increased the cash reserve ratio from 5 per cent to 6.5 per cent since December in order to curb credit growth, and in turn, inflation. The repo rate has also been hiked from 7.25 per cent to 7.75 per cent since last January 2007.