Low food prices bring inflation down to 6.39%

After remaining steady at 6.46 per cent for three weeks in a row, the wholesale price index (WPI) annual rate of inflation declined to 6.39 per cent for the week ended March 24 due to lower prices of food items and some manufactured products.

However, inflation remained above the Reserve Bank of India's projection of 5-5.5 per cent for the year 2006-07. It stood at 4.06 per cent in the same period a year ago.

"Inflation might come down in the weeks to come with the tighter monetary policy of the RBI, which had last week raised short-term lending rate (repo) by 0.25 per cent, and an increase the cash reserve ratio by 0.5 per cent," said D K Joshi, principal adviser, Crisil.

The two moves by the RBI would suck around Rs 19,500 crore from the system.

"However, if it does not come down to the expected level, the RBI might take further tightening measures in its annual monetary policy, slated for April 24," Joshi added.

The index of primary articles, which has a weighting of 22.02 per cent in the WPI, rose by 0.5 per cent to 215.3 for the week ended March 24. Prices of tea, barley, fruits and vegetables, and raw cotton declined, while those of urad, gram, masur, sweet water fish, and condiment & spices rose.

The index of manufactured products, which has the highest weighting in the WPI, rose marginally by 0.1 per cent to 183.4 for the week ended March 24, as compared to 183.2 the previous week. In manufactured products, prices of oil-cakes, imported edible oils, hessian clothes and all kinds of acids increased.

However, the index of fuel, power, light and lubricants (weighting 14.23 per cent in the WPI) remained unchanged at previous week's level of 319.5.

According to official estimates, the production of oilseeds of various categories like groundnut and mustard is likely to go down in 2006-07 crop year (ending June). This may increase prices of edible oils. However, prices of sugar, paper products, and non-ferrous metals declined.