CHEAPER FUEL SLOWS INFLATION TO 11.44%

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DRIVEN by the steepest week-onweek decline (0.5%) in the wholesale price index (WPI) since April 2000, inflation for the week ended October 4 dropped to 11.44% from 11.8% in the previous week. Year-on-year inflation was at 3.22% for the corresponding week last year. While overall inflation continues to fall, prices of primary articles have inched up in recent weeks.

Economists said fall in commodity prices and the tight liquidity scenario will bring down inflation further. Saumitra Chaudhary, member of prime minister’s economic advisory council, expects inflation to fall to single digits by December.

The WPI index dropped 0.5% to 239.6 for the week ended October 4, 2008 from 240.7 for week ended September 27. This is the largest week-onweek drop in indices since the new series started in April 2000.

The sharp week-on-week decline in WPI was largely because of the 1.1% drop in the index for fuel, power and lubricants basket following downward revision in prices of naphtha, aviation turbine fuel and furnace oil. The prices of these products are market-driven and the crash in international crude prices has led to price of these products coming down in recent weeks. The year-on-year inflation in this product category has dropped to 14.7% for the week ended October 4 from 16.7% in the previous week.

Manufactured products, which have a weight of 63.7% in the WPI, also contributed to the decline in inflation. Over the week ended October 4, the price index for this product category dropped 0.5%, which in turn drove the year-onyear inflation down to 9.7% from 10.3% the previous week.

The food products group in this segment dropped by 2.4% on a week-onweek basis. Cottonseed, imported edible oils and groundnut also posted a decline over the week. However, prices of articles like sugar, salt, groundnut and showed an increase on a week-on-week basis.

In the non-food category, machinery and machine tools, transport equipment and parts and textile groups, the index inched up by 0.1% over the week. Basic metals, alloys and metal products, however, saw a week-on-week decline in their respective indices.

The only bad news in the latest numbers is the price of primary articles. Inflation in primary articles (22% weight in WPI) was at 12.7% for the week ended October 4 as against 11.2% in the previous week. Not only was the year-on-year inflation up, index for food articles within this category was up week-on-week as well, suggesting prices of mass consumption items were on the up again. In keeping with this trend, inflation of 30 essential commodities increased to 7.88% for the week ended October 4, 2008 from 7.74% in the previous week.

“With the crude oil prices showing a marked drop there will be drop in prices of items which have a direct correlation with crude prices like edible oils, raw rubber and chemicals. The prices of steel and other commodities are witnessing a fall in backdrop of recession in US and Europe,” Mr Chaudhary said.

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