Inflation dips to 10-month low, at 4.80%

Driven by cheaper food items and fuel prices, the wholesale price index-based inflation dipped to a 10-month low at 4.80 per cent for the week ended June 2. The inflation rate stood at 4.88 per cent during the corresponding week last year.

Inflation for the previous week ended May 26, stood at 4.85 per cent, compared with 4.72 per cent for the corresponding week in 2006.

The decline in inflation is due to a higher base effect. The WPI (wholesale price index) for the week rose by 20 basis points to 211.9 from 211.7 in the previous week. During the same week last year, WPI increased by 30 basis points.

"The fall in inflation level is as per market expectations. Base effect will ensure that inflation stays at current level in coming weeks," said DK Joshi, principal economist at rating agency Crisil.

When asked whether the threat of a rising inflation is over, Joshi said, "Growth is still high and demand side pressure still remains. So, the threat from inflation is yet not over."

"My fear is that in the next couple of weeks, there may be an upturn in inflation, starting from third week of June till end of July. Inflation may touch the 5-per cent mark during this period," said Saugata Bhattacharya, vice-president, business and economic research, UTI Bank.

Inflation touched 5.29 per cent in the week ended June 10, 2006 and fell to 4.72 per cent by end of July 2006, with fluctuations. "After July, inflation will remain in the 4.5 to 4.7 per cent range till October or November depending on the monsoon," Bhattacharya added.

When asked whether the RBI could further take some tough monetary measures, Bhattacharya said, "The RBI will keep tracking the situation. At best, it may take measures as liquidity growth still remain robust."