Inflation falls to five-yr-low of 3.32%

Wholesale price index-based inflation fell to a near five-year low to 3.32 per cent for the week ended September 8 compared with 3.52 per cent in the previous week. The decline is largely due to higher base effect as inflation during the same week last year was 5.22 per cent.

The government also revised the inflation rate for the week ended July 14 to 4.76 per cent from the provisional figure of 4.41 per cent declared earlier. "Though inflation has become more benign, it has not been fully tamed yet. Most of the decline is due to the base effect. High fuel prices and pressure from commodity and foodgrain prices could exert upward pressure on inflation," said DK Joshi, principal economist, Crisil.

"Inflation may start climbing again from mid-October, after which it may cross the 4 per cent mark," said Saugata Bhattacharya, vice-president, business and economic research, Axis Bank.

However, analysts do not feel the RBI will soften its monetary policy stance after the Federal Reserve lowered its benchmark federal funds target rate by 50 basis points to 4.75 per cent.

"Though international monetary situation is an important factor, it cannot be the only cause for a domestic policy reversal. The RBI will wait for sustainability of the current trend of benign inflation rate. I expect the RBI to stick to existing stringent monetary policy," he said.

Bhattacharya expects a status quo on the monetary policy front. Inflation fears forced the RBI to raise interest rates many times in the past. It last raised interest rates in March. At its policy review in July, it raised the cash reserve requirement for banks by 50 basis points to 7 per cent.

To check inflation, the government has banned export of pulses, wheat and skimmed milk powder to curb price rises. It has also reduced Customs duties on wheat, maize, pulses to zero.