Inflation dips to 8.58% in October

Inflation dips to 8.58% in October

New Delhi: Inflation fell for the second consecutive month to a nine-month low of 8.58% in October, which together with a slowdown in industrial growth may prompt Reserve Bank of India (RBI) to halt its monetary tightening stance.

The 0.04% decline in inflation from 8.62% in September is significant, given that inflation stood at just 1.48% in the same month last year.

As a result of the low base in September 2009, the rate of inflation in September 2010, appears elevated, which is known as the “base effect".

However, the decline in inflation may prove temporary, since it has become a trend nowadays for the numbers to witness frequent upward revision after being initially announced.

For the month of August, inflation has been revised to 8.82% from the earlier provisional estimate of 8.51%.

Commenting on the latest inflation data, finance minister Pranab Mukherjee on Monday said the RBI’s monetary actions have helped to bring down the rate of price rise, but supply side constraints were exerting pressure.

“From April 2009, to September 16, 2010, we have increased CRR (cash reserve ratio) by one percentage point. We have increased repo rate 1.5%. We have increased the reverse repo by 1.75%. That has come effects. Inflationary pressure is coming from supply side also," he said.

Mukherjee noted that the international situation also impacts inflation. “International situation has its own impact," he said.

In October, food items like onions and other protein-based articles felt the maximum inflationary pressure.

Onion prices rose by 24.07% in just a month as parts of Maharashtra, which is the biggest producer of the vegetable, saw large-scale crop damage due to heavy rains.

In addition, certain protein-based food items like milk remained expensive, even though prices rose by just 0.68% on a monthly basis, as they were 21.65% higher year-on-year.

Similarly, fruits prices rose by 4.71% on a month-on-month basis, but were 15.84% higher on a yearly basis.

“Food is a bigger problem at hand. Food prices are tricky," Crisil chief economist DK Joshi said, referring to the RBI observation that food prices are now a structural problem.

The RBI has said prices of protein-based items are rising, since they now constitute a larger chunk in the population’s consumption basket.

Joshi was of the view that while the domestic factors in terms of inflation looked okay, rising global commodity prices may disturb the picture.