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Inflation Down Marginally; Essential Items Costly

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Overall inflation fell marginally to 6.89 per cent in March but prices of essential items like pulses, potato and milk remained "disturbingly" high, prompting Finance Minister Pranab Mukherjee to state that the government would have to address the problem.

There is a widespread expectation that RBI may lower lending rate at its annual credit policy announcement on Tuesday, although the inflation rate is still higher than the central bank's comfort level of 5-6 per cent.

Despite high prices of food items, the annual rate of inflation moderated to 6.89 per cent in March, from 6.95 per cent in February. It was 9.68 per cent a year ago.

" inflation in the month of March has increased, which is disturbing factor. I do hope in course of time it will moderate," Mukherjee told reporters.

Pointing out that it would have been more comfortable had the inflation been closer to 6.5 per cent, he said, "we shall have to be alert on it...Of course, the supply side constraint substantially effect food inflation. We will be addressing that."

As per the Wholesale Price Index (WPI), inflation of food items rose sharply to 9.94 per cent in March, as against 6.07 per cent in February. Food articles have 14.3 per cent share in the WPI basket. Vegetable prices in March shot up to 30.57 per cent, from 1.52 per cent in February.

However, inflation of the manufactured goods showed some moderation to 4.87 per cent, from 5.75 per cent in February.

Experts attributed easing in the manufacturing sector inflation to high base of last year, when it was 7.45 per cent in March 2011.

"Notwithstanding concerns related to suppressed inflation and elevated global crude oil prices, the RBI is expected to reduce the repo rate and CRR by 25 basis points each in the upcoming policy review, ICRA Economist Aditi Nayar said. Inflation, as measured by the Wholesale Price Index (WPI), remained high for most part of 2011, and RBI had hiked interest rates 13 times to tame the price rise.

Making more money available for lending, the central bank has already cut the CRR, the portion of deposits banks have to keep with the Reserve Bank, by 125 basis points since late January to 4.75 per cent.

The challenge before RBI is to arrest the decline in growth, which slipped to three-year low of 6.9 per cent in 2011-12. The government expects the GDP growth to accelerate to 7.6 per cent in 2012-13, although the Asian Development bank (ADB) has pegged it at 7 per cent.

As per the data, inflation in overall primary articles rose sharply to 9.62 per cent in March, from 6.28 per cent in February.

During the month, milk became expensive by 15.29 per cent, while rice and cereals turned costlier by 4.73 per cent and 4.41 per cent respectively.

Prices of potato too rose by 11.60 per cent.

Prices of eggs, meat and fish prices rose 17.71 per cent.

The rate of price rise was lower than 20 per cent in February.

Besides, onion prices declined by (-)24.23 per cent in March. The rate of decline was (-)48.50 per cent in February.

The headline inflation number for January was revised upwards to 6.89 per cent, up from the provisional estimate of 6.55 per cent.

In manufactured items, inflation has been high since February 2011, when it crossed the 6 per cent mark.

Year-on-year, among manufactured items, iron grew dearer by 17.18 per cent and edible oil prices rose by 9.78 per cent.

Inflation in tobacco products and basic metals was 8.22 per cent and 9.51 per cent, respectively.