New Delhi: Inflation moved towards zero by declining to 0.27% for the second week of March, even as essential food prices continued to remain high due to high MSP (minimum support price) and inadequate production of pulses and coarse cereals.
The 0.17 percentage point decline in wholesale prices inflation from 0.44% during the week ended 7 March was also attributed partly to a high base effect as the rate of price rise was 8.02% in the same period a year ago.
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“This is not because of lack of effective demand. It is basically due to the base effect and that is not something which we are unaware of, not something which we are not factoring (in),” economic affairs secretary Ashok Chawla said.
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The persistent decline in inflation has fuelled hopes that the Reserve Bank of India would further ease money supply to boost economic growth, which is slackening.
“As for RBI cutting rates, in a month we can see some 50 basis point cut in key rates. Right now there has been enough liquidity and RBI has been proactive in taking measures,” Crisil principal economist DK Joshi said.
Food prices in the primary articles group (which are not processed) rose 0.1% on a weekly basis and a whopping 7.10% on a yearly basis. In the manufactured category (processed variety), food prices increased 1.2% on a weekly basis and 6.63% year-on-year.
Joshi said the rise in food prices was because of bad farm performance in pulses and coarse cereals, even as wheat and rice production has been good.
“Food prices are high as prices of pulses, coarse cereals have been rising. Agriculture performance has not been good in coarse cereals and pulses,” he said.
He said the rise was also due to high minimum support prices for farmers and expected the rate of food price rise to fall by June-July.
Earlier this week, Prime Minister Manmohan Singh had said food prices have not fallen as the government sought to increase incomes in rural areas.
“Farmers have never been given (in the past) such increases in terms of procurement prices,” he had said.
The index for the major categories -- manufactured goods and primary articles -- rose, while that of fuels remained unchanged.
Inflation is so close to zero that economists expect the possibility of it slipping into negative territory shortly.
RIS director-general Nagesh Kumar said, “Inflation might slip into negative territory in the coming weeks and it should provide space for RBI to further lower policy rates.”
Joshi said inflation will go into the negative zone within two weeks..
However, economists refuse to term it deflation.
“Do not ask me to use such simplistic terms as deflation. Food prices are high, consumer price based inflation is high,“ chief economic advisor to the Finance Ministry Arvind Virmani had said on Wednesday.
Among primary food products, prices of barley rose by 2%, while those of bajra, maize, fruit and vegetables, masur, urad and rice increased by 1% each.
However, prices of sea fish and tea declined by 3% each; moong 2%; and condiments & spices and gram by 1% each.
Among manufactured food items, prices of oil cakes were up 7%; imported edible oil by 6%; gur by 4%; and maida, sooji, rice bran oil and cottonseed oil by 1% each.
Prices of bran were down by 3%, and rapeseed and mustard oil and coconut oil by 2% each.
Graphics by Paras Jain / Mint
Video story by Rahul Sharma