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Business News/ Politics / News/  Inflation slows to 5-year low at 2.97%
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Inflation slows to 5-year low at 2.97%

Inflation slows to 5-year low at 2.97%

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New Delhi: Inflation rate fell below 3% for the first time in more than five years after the government refrained from raising fuel prices this year, when crude oil rallied to a record.

Wholesale prices rose 2.97% in the week ended 27 October from a year earlier, compared with a 3.02% gain in the previous week, the ministry of commerce and industry said on Thursday.

Analysts had forecast inflation at 3.06%.

Capping fuel prices will cost the government about $12 billion (Rs47,160 crore) in the two years ending 31 March, equal to almost one-10th of India’s annual budget.

India may next week allow the first increase in fuel prices this year, letting state-run refiners to partly pass on the record rise in crude oil costs to consumers, oil minister Murli Deora said on Wednesday.

“The inflation rate will be higher by 1.5 percentage points if the entire increase in oil prices is allowed to be passed through into the economy," said Robert Prior-Wandesforde, senior Asian economist at HSBC Group Plc. in Singapore.

“It is too early to say interest rates have peaked in India," he said.

The benchmark 10-year government bond yield was unchanged after the inflation data was announced. The yield on the 7.99% bond due July 2017 held at 7.91%.

India hasn’t allowed refiners to raise prices this year on concern it will accelerate inflation before state and national elections.

The Reserve Bank of India (RBI) governor Yaga Venugopal Reddy, while maintaining its policy rates at a five-and-a-half-year high last week, described the current inflation rate as “suppressed" because it does not reflect the rise in oil price to records.

RBI had on 30 October unexpectedly ordered lenders to set aside more reserves for the fourth time this year to contain inflation.

Reddy reiterated that the bank aims to contain inflation below 5% by March.

Refiners, including Indian Oil Corp. Ltd, the country’s biggest, had sought a 15% rise in diesel prices and 6.7% in petrol in early September.

Crude oil prices have risen 52% this year, inching close to $100 a barrel.

India on Thursday revised the inflation rate for the week ended 1 September to 3.72% from 3.52%. The government revises the figure after a delay of two months on additional price data.

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Published: 08 Nov 2007, 11:57 PM IST
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