Experts forecast another round of interest rate cuts next week.
The inflation rate, as measured by the wholesale price index (WPI), rose for the week ended January 10 as a strike by truckers pushed up prices of food and manufactured products. This is the first time in the last 12 weeks that the rate has gone up.
Experts, however, said the downward trend would continue and they expected further reduction in key interest rates by the Reserve Bank of India (RBI). The strike by truckers had continued for eight days till January 13.
The inflation rate rose by 36 basis points (one basis point is one-hundredth of a percentage point) to 5.6 per cent, compared with 5.24 per cent in the previous week. It was 4.36 per cent in the corresponding week a year ago. Despite this, the inflation rate is at a 10-month low.
“I think it is only a temporary rise. Inflation will absolutely go down given the worsening domestic and global economic conditions”, said DK Joshi, economist with Crisil Ltd, a ratings and advisory firm.
Headline inflation, after touching 12.91 per cent in early August last year, dropped sharply because of decline in prices of metal and fuel products. Taking advantage of the decline in price levels, the RBI reduced the repo rate, the rate at which it lends to banks, by 3.5 percentage points to 5.5 per cent in less than four months.
“The RBI is expected to keep GDP growth and stability in the credit market as its main focus when reviewing the monetary policy. Thus, the monetary easing cycle will continue through the first half of 2009 as growth momentum will significantly ease and the global financial market turmoil seems far from over”, said Sherman Chan, economist with Moody’s Economy.com, an economic research unit.
She forecasts another round of interest rate cuts next week.
The primary articles group, which has a weight of 22 per cent in the index, increased to 11.6 per cent, as against 10.9 per cent in the week ended January 3, 2009. Food articles, part of the primary articles group, rose sharply to 11.6 per cent, as against the 9.5 per cent growth seen in the previous week.
The inflation rate for manufactured products rose to 5.9 per cent as against 5.6 per cent in the previous week. But the rate of inflation for the “fuel and power” category remained unchanged at –1.3 per cent.
Meanwhile, the final inflation number for the week ended November 15, 2008, is 8.66 per cent, as against the initial estimate of 8.84 per cent. This is the third consecutive week when the final estimate is lower than the initial number.
