RTTNews - India's annual inflation rate for the week ended Aug 22 rose slightly to minus 0.21 percent from minus 0.95 percent in the previous week , data released by the commerce ministry showed on Thursday. The headline inflation rate stood at 12.76% in the year-ago week.

It is for the twelfth consecutive week that the wholesale price index stayed in negative terrain despite a sharp rise in the prices of food and essential commodities. Negative inflation doesn't imply lower retail prices and it was more due to the high base effect.

On a week-over-week basis, the annual inflation rate rose 0.8 percent, suggesting a price buildup in the economy due to drought-like situation in the country.

The index for primary articles, which has a weighting of 22%, rose 0.7 percent week-over-week and the index for manufacturing products accounting for roughly 64% of the index, rose 0.5 percent. The price index for fuel and power having a 14% weighting saw a greater rise, rising 1.5 percent, probably due to the rise in crude prices.

Earlier this week, while prime minister Manmohan Singh expressed confidence that the global economic downturn is coming to an end, planning commission deputy chairman cautioned that the growth rate may turn worse in the current and next quarter because of the impact of drought.

Managing inflation expectations remains a challenge and higher food prices due to lackluster monsoon rains may drive inflation above the comfort zone of 4-5 percent by the end of the current fiscal year, the planning commission said in a report for the prime minister.

The Reserve Bank of India (RBI) also holds similar views. In its annual report for 2008-09, the RBI warned that an upside risk to inflation could persist from a rebound in global commodity prices ahead of the global recovery. Increase in minimum support price that may be seen as a measure to support farmers in a below monsoon year, could stoke inflation, the report warned.

The central bank fears that rainfall deficiency during the kharif season could affect the growth and inflation outlook, besides rural disposable income. Large borrowing program planned by the government for fiscal year 2010 may worsen the actual inflation situation over time.

The wholesale price index is more closely tracked than consumer-price gauges for economic analysis, as it captures prices of a higher number of products and is released weekly. The consumer price index, which is released on a monthly basis, rose 11.89 percent in July from 9.29 percent in June, government data showed recently.

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