Inflation dips to 4.80% on cheaper food, energy

Driven by cheaper food items and fuel prices, wholesale price based
inflation (WPI) dipped to a 10-month low at 4.80% for the week ended June 2.

The inflation rate stood at 4.88% during the corresponding week
last year.

Inflation for the week ended May 26 stood at 4.85%, compared to 4.72% for the corresponding week in 2006.

The decline in inflation is also due to a higher base effect. WPI for
the week rose 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 D
K Joshi, principal economist at rating agency Crisil.

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

"My fear is that there may be an upturn in inflation starting from 3rd week of June till end of July. Inflation may touch the 5% mark during this period," said Saugata Bhattacharya, vice president (business and economic research), UTI Bank.

Inflation touched 5.29% in week ended 10 June, 2006 and fell to 4.72% by end July, 2006.

"After July, inflation will remain in the 4.5 to 4.7% range till October or November, depending on the monsoon," Bhattacharya added.

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

RBI is scheduled to review its monetary policy on July 31, 2007.

During the week under discussion, prices of food items declined by 0.1% due to lower prices of condiments and spices, moong and bajra. However, the prices of non-food items rose by 0.1% due to higher
prices of raw silk, mustard seed, sunflower, raw tobacco and groundnut seed.

Prices of fuel, power, light fell marginally by 0.1% due to fall in
prices of aviation turbine fuel and furnace oil. Prices of manufactured products, however, rose by 0.2% during the week.