Inflation moves above 4%

The rate of inflation based on the wholesale price index (WPI) shot up to a six-month high of 4.11% for the week ended January 26, 2008, up from 3.93% during the previous week. During the same week a year ago, the inflation rate had stood at a two-year high of 6.69%. The rate was last above 4% in August 2007.

Prices of fruit, wheat, salt, pulses, condiments and spices, bread and mustard oil increased during the week under review. Prices of manufactured goods, which accounts for around 64% in the WPI basket, rose 0.3% from the previous week, whereas prices of primary articles which contributes 22% to the WPI basket rose by 0.4%.

The government also revised the inflation data for the week ended December 1, 2007 to 3.89% from the earlier announced level of 3.75%.

"Present inflation rate is above expectations. If inflation touches 4.5% which is above the medium term target of the central bank, then there may not be any rate cut. As of now, given the projection of 8.7% growth rate by the Central Statistical Organisation, upside risk to inflation remains more problematic than a moderation in growth," said Saugata Bhattacharya, chief economist, Axis Bank.

The Reserve Bank of India has kept the benchmark interest rate unchanged in its quarterly monetary policy review last week, on concerns of rising fuel and food prices. "Headline inflation has remained suppressed at the current juncture and inflation risks on account of oil prices remain incipient," the central bank had said.

Analysts feel that an imminent oil price hike would further push up inflation rate. The union Cabinet again avoided taking a decision on raising fuel prices this week, in a move to protect the poor and contain inflation rate.

Domestic prices of petrol and diesel have remained unchanged since February 2007, when domestic prices were last cut.