India's inflation rate for the week ended March 21 rose marginally to 0.31%, after declining successively during the previous eight weeks. The inflation rate stood at 0.27% a week before, and was 7.85% for the corresponding week of the preceding year, data released by the Ministry of Commerce and Industry say.
Going by provisional figures, the wholesale price index or WPI for all- commodities fell 0.1% to 227.3 from 227, the week before.
Inflation, based on the wholesale price index, increased due to higher prices of soybean, niger seed, raw rubber, bajra, condiments and spices, as also groundnut seed, turbine fuel and some manufactured items covered under all-category groups.
The final estimate of inflation for the week ended January 24 was lowered to 4.70% from the earlier provisional figure of 5.07%.
The main index for primary articles rose marginally, due to higher prices of soybean, niger seed, raw rubber, bajra, condiments and spices as also groundnut seed. However, the prices of fruits and vegetables, barley, jowar and raw silk declined.
The index representing fuel, power, light and lubricants declined marginally, due to lower prices of furnace oil. The prices of aviation turbine fuel, however, moved up.
The index of Manufactured Products rose by 0.2%, due to higher prices of blended tealeaf green, packed tea, aerated water, PVC fittings and accessories, oilcakes, all types of soft drinks, lead ingots, as also switchgears, while the prices of cast iron, spun pipes, carbon black, woolen yarn, liquid nitrogen, plates and strips, springs, rice bran oil, khandsari, as also zinc declined.
India's inflation started declining to historic lows, after the Reserve Bank of India started to aggressively reduce its policy rates.
Economists feel that the lower inflation rate does not necessarily mean that prices have fallen. Lower inflation rate only means the rate of rise in prices has come down, not the actual prices.
The Asian Development Bank's South Asia Department Director Bruno Carrasco in his annual report 'Asian Development Outlook 2009 or ADO 2009' said India's Inflation should remain low in 2009-10 as well as in 2010-11, due to comfortable agricultural output, lower taxes on goods and weak domestic demand as also a decline in global commodity prices.
The ADO 2009 forecasts an inflation rate of 3.5% for the fiscal year 2009 and to rise a little to 4% for fiscal year 2010, as domestic markets recover and international prices of oil and non-oil commodities edge up.
The slowdown in headline inflation has created ample scope for the RBI to further cut the repo rate, which now stands at 5%. Although the case for further monetary loosening is solid, monetary action, in fact, slowed in the past two months.
Sherman Chan, economist at Moody's Economy.com, said the RBI appeared hesitant likely because inflation was still a matter of concern. The most-watched wholesale price inflation rate had slowed down considerably, but consumer price growth remained stubbornly strong in double-digit territory, as per the latest available data. The RBI was perhaps waiting for consumer price inflation to moderate, Chan added.
With inflation fast approaching zero per cent, bankers have sought to allay fears that the country may be in the deflation mode, on grounds that the consumer price index was still high and deflation was a statistical phenomenon due to base effect. Deflation happens in the economy, if negative inflation sustains over a period of time.
Abheek Barua, chief economist at HDFC Bank, said inflation would go into the negative territory in mid-April and economists were looking at a 5-6 month period of negative inflation.
R.K.Bansal, IDBI bank Chief Financial Officer said: Deflation is unlikely to have any major impact on the economy. Negative inflation, if it happens, will occur mainly on account of declining oil prices, (and) easing monetary policy. It is unlikely to stay long.
Citibank Chief Financial Officer Abhijit Sen echoed a similar view saying that a declining inflation was a reflection of slowing economic growth and easing of monetary policy.
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