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Inflation Back To

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With wholesale prices-based inflation coming to a level seen on August 10, 2002, by falling 0.33 percentage points from 3.36 per cent a week ago, economists expect the RBI to further cut rates next month.

This is the fifth consecutive week that inflation has fallen.

Economists expect inflation to reach zero by this fiscal end.

While most food products in raw form saw a decline in prices, manufactured food items like sugar and ghee turned marginally expensive.

Most other manufactured products also became cheaper, with the exception of metals alloys and machine tools.

Crisil Principal Economist D K Joshi said, "There could be further rate cuts. I believe there could be a cut of 50 basis points in both the repo and reverse repo rates next month."

With inflation going below four per cent, the RBI on Wednesday cut the short-term lending and borrowing rates -- the repo and reverse repo -- by 50 basis points to arrest economic slowdown with India's GDP growth falling to over a five-year low of 5.3 per cent in Q3 of the current fiscal. However, the central bank has noted that consumer prices are still high, but expressed the hope that they may also come down after some time.

The Reserve Bank pointed out that consumer price inflation, as reflected in various indices, is in the range of 9.85-11.62 per cent as of December 2008-January 2009 and is yet to show moderation.

"Consumer price inflation has remained at elevated level due to increase in primary articles' prices. With WPI inflation having moderated significantly, consumer price inflation may also be expected to decline, though with a lag," the RBI said.

However, it is mainly wholesale price inflation that is widely tracked.

The wholesale price index (WPI), on which inflation is based, declined by 0.1 per cent to 227.6 points for the week ended February 21, 2009, from 227.8 points a year ago.

Among food products, vegetables turned cheaper by 3.2 per cent and fruit by little less than one per cent. Bajra, jowar and gram also became cheaper. However, prices of maize and arhar moved up.

Among non-food items in raw form, raw silk prices declined by seven per cent, copra by three per cent and rape and mustard seed and gingelly seed by one per cent each.

In fuels, jet fuel saw a 4 per cent decline in prices, and furnace oil by one per cent.

In the manufactured goods category, sugar turned expensive by two per cent and ghee by one per cent.

Prices of machinery and machine tools also rose, but those of textiles, basic metals alloys and transport equipment and parts declined.


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