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Inflation at year’s low; hopes of rate cuts by RBI

Inflation at year’s low; hopes of rate cuts by RBI
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First Published: Thu, Feb 12 2009. 03 25 PM IST
Updated: Thu, Feb 12 2009. 03 25 PM IST
New Delhi: Lower prices of fuel, food and liquour pulled down inflation to over a 12-month low of 4.39%, raising expectations of further cuts in policy rates by the Reserve Bank.
Wholesale price-based inflation declined by 0.68 percentage points during the week ended 31 January from 5.07% a week ago, mainly on account lower prices of petrol, diesel and cooking gas.
On 28 January, the government reduced the prices of petrol by Rs5 a litre and diesel by Rs2 per litre, while the domestic LPG rate was also slashed by Rs25 per cylinder. The previous comparable low was recorded at 4.36% for the week ended 12 January, 2008.
The inflation number is slightly higher than expected. However, this gives the RBI more elbow room for rate cuts. There could be reduction in the repo and reverse repo rates by 50 basis points each in the coming days, said HDFC Bank Economist Jyotinder Kaur.
During the week the fuel group index declined by 3.1% mainly due to the cooling of petrol prices by 11%, LPG by 8% and diesel by 7%. The other consumable items that became cheaper were liquor, by 15%; fruit and vegetable, by 3%; and tea, by 1%.
In the last two weeks, inflation declined by as much as 1.25 percentage points. “I see deflation in the month of April, which might continue till October,” Kaur said.
Inflation stood at 4.74% in the corresponding week a year ago. During the week, prices of groundnut oil were cheaper by 3% while imported edible oil and mustard oil declined by 2% each.
Elsewhere, prices of the raw cotton declined by 1% while chemicals like titanium dioxide got cheaper 16%, monocrotophos 13%, benzene 12%, and endosulfan 5%.
Items of common use like dhoties, sarees became cheaper by 6% and ceiling fans by 3%. Auto rickshaws were cheaper by 4% and springs were down as much as 31%.
However, items that turned expensive during the week were jowar, by 7%, maize and bajra, by 3% each; wheat and rice, by 1% each. Other items like ghee were dearer by 2% and sugar prices went up by 1%.
Cement also got expensive marginally during the week. Tablets except vitamins and penicillin were dearer by 3% while footwear and plywood by 1% each.
Inflation for the week ended 6 December, 2008, has been revised downwards to 6.56% as compared to 6.84% in the provisional estimates.
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First Published: Thu, Feb 12 2009. 03 25 PM IST
More Topics: India | Economy | Inflation | Recession | Production |