New Delhi: Inflation remained unchanged in the last week of December, holding below the Reserve Bank of India’s (RBI) 5% target for a seventh straight month and making further interest rate increases less likely.
Wholesale prices rose 3.5% in the week ended 29 December from a year earlier, the same as the previous week, the ministry of commerce and industry said on Friday.
RBI has raised its benchmark interest rate nine times since October 2004 to help tame prices, succeeding in dragging down inflation from a two-year high reached in January 2007. The bank next meets on 29 January to review rates.
“The previous rate increases have slowed the demand for manufactured goods, helping inflation remain subdued,” said N.R. Bhanumurthy, an economist at the Institute of Economic Growth in New Delhi. “This is the right time for RBI to reduce rates as that will help revive industrial output.”
Higher borrowing costs have crimped consumer demand for factory-made products.
“Inflation is expected to remain around 4% by the end of the fiscal year, even with an oil price increase,” Bhanumurthy said.
Gains in manufactured prices, which account for 64% of the inflation basket, slowed to 3.52% in the week ended 22 December, the lowest since September 2006. Manufactured prices grew 0.2% in the latest week.
Prime Minister Manmohan Singh this week set up a panel to suggest measures to reverse a slowdown in the pace of manufacturing growth, which accounts for 17% of the nation’s $906 billion (Rs35.6 trillion) economy.
The government on Friday revised the inflation rate for the week ended 3 November to 3.35% from 3.11%.