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July inflation slows to 9.22%

July inflation slows to 9.22%
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First Published: Tue, Aug 16 2011. 04 12 PM IST
Updated: Tue, Aug 16 2011. 04 12 PM IST
New Delhi: Provisional headline inflation rate as measured by the wholesale price index declined to 9.22% in July from 9.44% in June. However, May inflation was revised to 9.56% from the provisional figure of 9.06% released earlier.
While food inflation declined to 8.19% in July from 18.48% a year ago, inflation of manufactured products rose to 7.49% from 5.78% in July last year. Because of the favourable base effect, fuel inflation moderated to 12.04% from 12.67% in June, despite a fuel price hike.
The acceleration in core inflation (non-food manufactured inflation) to 7.5% in July against 7.3% in June indicates that the pricing power of producers remains firm despite other sources of data indicating a weakening of consumer demand, said Aditi Nayar, economist at ratings agency Icra Ltd.
Despite the marginal slowdown in inflation, the central bank may stick to its strong anti-inflationary stance and raise policy rates in its mid-quarter monetary policy review on 16 September, economists say.
“We believe that there is no need to change our current view of a 25 basis point increase in the policy rate of RBI (Reserve Bank of India),” said Indranil Pan, chief economist at Kotak Mahindra Bank.
There are three crucial data points that RBI will take on board before deciding on the policy rate—first-quarter (April-June) gross domestic product data, factory output data for July, and inflation in August.
Pan said the latest data show that inflation dynamics have stabilized—the difference between the provisional and actual inflation data has narrowed to 50 basis points in the latest revision for May, from differences of 100-120 basis points in earlier revisions. A basis point is a hundredth of a percentage point.
“We are looking at a continuation of the sticky nature of inflation till November-December,” he said. “The big assumption that late rains do not spoil the party again for fruits and vegetables is likely to bring inflation down—but thereafter the trajectory could again be sticky.”
The dilemma for policy makers will get further acute, with concerns over domestic and global growth and the risk of another slump increasing significantly while inflation remains uncomfortably high, said Jay Shankar, chief economist and director at Religare Capital Markets Ltd.
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First Published: Tue, Aug 16 2011. 04 12 PM IST
More Topics: Inflation | WPI | CPI | Economy | India |