Inflation slips to 0.26% on slump in demand, low base effect

Inflation slips to 0.26% on slump in demand, low base effect
PTI
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First Published: Thu, Apr 09 2009. 06 18 PM IST
Updated: Thu, Apr 09 2009. 06 18 PM IST
New Delhi: Inflation declined to a three-decade low of 0.26% in the fourth week of March as the economy faces slowdown, raising expectations of rate cuts by the Reserve Bank of India (RBI) in its monetary policy later this month.
Wholesale price index (WPI) based inflation declined by 0.05 percentage points for the week ended 28 March from 0.31% in the previous week, even as food prices still remain high.
Although inflation is tending towards zero, the average rate of price rise works out to be 8.4% for the entire 2008-09 against 4.7% in 2007-08.
“I expect (a) 50 basis point cut in the repo (short-term lending) rate by the RBI during the month as inflation is expected to slip into negative territory in (a) couple of weeks,” Crisil principal economist D K Joshi told PTI.
ICRIER senior consultant Joseph Mathew said inflation was negative in 1975.
According to RIS director-general Nagesh Kumar, “inflation is low due to crisis in demand and crisis of confidence. It is low (also) due to base effect and gives (the) RBI the scope (to lower) policy rates in its annual policy.”
Falling exports and contracting industrial output, among others, have raised demand for more rates cut by RBI to spur industrial growth. Inflation falling to a low pf 0.26%, provides room to the central bank to ease monetary policy.
RBI governor D Subbarao had recently said that the central bank’s main objective is to arrest economic slowdown.
Besides capital goods, the production of consumer durables, which showed a negative growth for quite some time, rose by 5.7% in February from 3.1% a year ago.
In terms of specific industries, as many as 9 of 17 have shown negative growth in February. Hit by lower demand, metal products and parts recorded a massive decline of 31.3%, followed by food products, which contracted by 28.1%. Wood and wood products output fell by 16.5%.
However, production of machinery and equipment, other than transport equipment, climbed by 15.6%.
The government has provided three stimulus packages so far, including measures like excise duty cut of 6%, service duty reduction of 2%, increase in planned expenditure, leeway for infrastructure refinance company IIFCL to come out with tax free bonds and so on. RBI, on the other hand, has provided monetary stimulus for the economy.
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First Published: Thu, Apr 09 2009. 06 18 PM IST
More Topics: Inflation | WPI | CPI | Growth | RBI |