INDIA BUSINESS WORLD OCTOBER (1st - 20th) 2007
The Month that was ...
INFLATION HALTS 5-WEEK FALL, RISES TO 3.42%
After softening for five consecutive weeks to a five-year trough, India's inflation rate moved up marginally in the third week of September on account of costlier food products and manufactured goods. This reversal in trend subdues hopes of any softening in interest rates as the central bank gears up for a review of the monetary policy later this month.
The wholesale price index based inflation stood at 3.42% in the 12 months leading to September 22, higher than 3.23% for a similar period ending the previous week, official data said. This, however, is comfortably within RBI's yearly target of close to 5% and last year's inflation rate of 5.43%.
During the period under review, prices of manufactured items including food products, which account for slightly less than two-thirds of the total weightage, rose by 0.5%. Food products group alone moved up by 1% due to higher prices of oil cakes, salt, rice bran oil and imported edible oil. However, price increase in food items covered under primary articles slowed down by 0.1% due to lower prices of urad, gram and condiments and spices. Among manufactured commodities, prices of cement went up by 0.1%.
According to economists, week-to-week fluctuations either way is natural and may not be a matter of concern. "Inflation is very much within the central bank's comfort levels. But inflationary pressures are not fully tamed. High global crude oil price pose a risk. Although the rupee may appreciate further against the dollar in the long term, it may not do so as sharply as it did in the recent times. So we cannot bank on the possibility of a cheaper oil import bill offsetting the oil price risk. The second risk is uncertain food grain prices," Crisil's director and principal economist D K Joshi said.
"Besides, provisional figures are found to understate inflation. There is usually a difference of about 30-40 basis points between the provisional and final figures," said Mr. Joshi. For the week ended July 28, the annual rate of inflation was revised to 4.70% from the provisional 4.45%, an official statement said.
During the week ended September 22, acids of all kinds were expensive by 12%, blooms and billets slabs by 10%, lead ingots by 5%, ferro silicon by 3% and zinc ingots by 2%. However, aluminium ingots turned cheaper by 3% and steel ingots by 2%. Fuel, power, light and lubricant group remained unchanged during the week.
Standard Chartered Bank's chief India economist Shuchita Mehta expects inflation inching up towards 4-4.5% as the effect of high levels last year-6.69%-recedes.
In addition, the less widely watched consumer price inflation is still above 6%, economists said.
On account of inflation worries, the central bank may not lower the interest rate in the October 30 monetary policy revision, although it may increase the reserve requirements of banks in order to absorb the liquidity in the system that might fuel inflation, said Mr. Joshi.
HDFC Bank chief economist Abheek Barua also echoed similar views. "Although, interest rates might remain same but there was a lurking fear of hike in cash reserve ratio by the RBI, he said.
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