Annual inflation rate likely to come down to 6.57%, says poll

Annual inflation rate likely to come down to 6.57%, says poll

New Delhi: India’s annual inflation rate is expected to have fallen to a fresh nine-month low in the second week of December due to a tax cut on manufactured products and cheaper fuels, a Reuters poll showed on Wednesday.

The median forecast of 10 economists was for a 6.57% rise in the Wholesale Price Index (WPI) in the 12 months to 13 December, compared with 6.84% in the previous week.

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If the forecast is realized, it would be the smallest annual increase since 1 March, when the index rose 6.21%.

India reduced factory gate duties, the Central value added tax, or Cenvat, on a wide range of manufactured items by 4 percentage points on 7 December.

“The Cenvat impact on manufactured products’ prices, seasonal dip in fruit and vegetable prices and lower non-administered fuel prices on the back of softer global crude prices are all expected to take this week’s inflation number lower," said Shubhada Rao, an economist with Yes Bank Ltd.

Inflation raced into double digits in June after the government lifted state-set fuel rates and fast-rising commodity prices took it to 12.91% on 2 August, forcing the central bank to raise its main lending rate to a seven-year high of 9%.

It has since aggressively cut the repo rate by 250 basis points as the global financial crisis and high borrowing costs have slowed growth in Asia’s third largest economy. One basis point is one-hundreth of a percentage point.

Prices of petrol were cut by 10% with effect from 6 December, while diesel became 6% cheaper, contributing to a sharp fall in the index in the previous week. Prices of other fuels are market determined and linked to the price of crude oil. The central bank said recently it expects inflation to be significantly lower than its March-end target of 7%. On Tuesday, the chief economic adviser at the finance ministry, Arvind Virmani, said he expected inflation at around 5% by end-March.

The WPI is more closely watched than the Consumer Price Index (CPI) because it includes more products and is also published weekly. The CPI is released monthly.

Graphics by Ahmed Raza Khan / Mint