Inflation crosses 6% on dearer fuel

The annual point-to-point rate of inflation based on the Wholesale Price Index (WPI) breached the 6 per cent mark for the week-ended June 26.

Driven by a steep 2 per cent hike in the index for fuel, power, light and lubricants, the index touched 6.09 per cent "" its highest level in 21 weeks.

However, inflation is likely to drop sharply after mid-August. The index for basic metals and alloys had started rising steeply in August 2003 on account of a hike in steel prices. The rally continued till February 2004.

According to analysts, once the high base effect comes into play in mid-August, the inflation level will drop.

For the week-ended June 26 the index for basic metals and alloys was at 218.1, compared with 160.2 in the corresponding period last year. Since basic metals and alloys have a fairly high weightage in the WPI "" 6.2 points "" this segment alone has contributed 2.4 per cent of inflation.

The impact of the hike in excise duty on steel from 8 per cent to 12 per cent is also likely to be limited to raising inflation by 15 basis points, says Saumitra Chaudhuri, Economic Adviser at ICRA.

Buyers of steel can claim excise duty exemption for steel and will not need to pass on increased costs to buyers, limiting the inflationary impact of the move.

The WPI-based inflation level was 5.87 per cent in the previous week and 5.32 per cent in the corresponding week last year. The inflation rate, based on the final index for the week ended May 1, 2005, was revised to 4.6 per cent, against 4.2 per cent reported earlier.

At the disaggregated level, the index for fuel products rose steeply, mainly on account of a sharp rise in coal prices and rise in prices of mineral oils.

Prices of coking coal rose a steep 24 per cent and of non-coking coal 16 per cent.

Light diesel oil prices rose 4 per cent during the week, petrol 1 per cent, furnace oil 5 per cent and naptha and bitumen 2 per cent each.

The index for manufactured products rose 0.1 per cent. Within this broad category, the prices of oil cakes rose 2.1 per cent, edible oil prices rose 0.7 per cent and tea and coffee processing prices were up 0.5 per cent.

Prices of primary articles fell 0.5 per cent on the whole. Within this broad group, prices of food articles fell 0.7 per cent, mainly because of a 5 per cent fall in the prices of marine fish and ragi and a 3 per cent fall in prices of fruits and vegetables.

The index for non-food articles remained unchanged at the previous week's level despite a 2 per cent rise in prices of soyabean and 8 per cent fall in prices of niger seed, 4 per cent fall in niger seed prices, 4 per cent fall in sunflower prices.