New Delhi: Inflation slowed as prices of vegetables, pulses and manufactured goods fell.
Wholesale prices climbed 4.07% in the week ended 2 February from a year earlier, slower than previous week’s 4.11%, ministry of commerce and industry said on Friday.
Slowing inflation may be temporary because Prime Minister Manmohan Singh on Thursday approved raising retail fuel prices for the first time in 20 months.
Singh was forced to raise fuel prices to cut losses at Indian Oil Corp. Ltd and its counterparts, and lower the burden of record crude oil costs.
The government raised the retail price of petrol by Rs2 per litre and the cost of diesel by Re1 per litre, oil minister Murli Deora said on Thursday.
The Reserve Bank of India (RBI) kept interest rates at a five-year high on 29 January, citing concerns that fuel and food costs may fan inflation in Asia’s third largest economy.
“The conduct of the monetary policy will become a bit more difficult as RBI will need to strike a balance between reducing inflation and sustaining growth,” said Dharmakirti Joshi, an economist at Mumbai-based Crisil Ltd, the local unit of Standard and Poor’s.
The increase in oil prices will “push up headline inflation by around 0.2-0.3%,” said Rajeev Malik, senior economist at JPMorgan Chase and Co. “The outcome will still be below the Reserve Bank’s 5% comfort level for inflation.”
Containing inflation is a priority as “it hurts the poor more than the rich”, Singh said. “Therefore, it is essential that we ensure that the poor are not adversely affected by high inflation, particularly of basic items of consumption.”
RBI has raised the benchmark interest rates nine times since October 2004 to help contain loans growth and curb prices. Inflation needs to be brought down further, RBI deputy governor Rakesh Mohan said on Thursday, before the fuel price increase was announced. “The inflation rate is still high by global standards.”
Higher borrowing costs are crimping demand for homes, motorbikes and other consumer durables. Consumer spending has been a key driver of India’s economic growth, according to finance minister P. Chidambaram. Chidambaram had on 12 February asked state-run banks to provide more loans for the purchase of homes and consumer goods after asking banks to cut interest rates last month.
RBI left the repurchase rate at 7.75%, maintained the reverse repurchase rate at 6% and kept its cash reserve ratio at 7.5% at its January meeting.
The commerce ministry on Friday revised the inflation rate for the week ended 8 December to 3.84% from 3.65%.