Inflation softens a bit, touches 11.89 %

24 Jul, 2008, 1800 hrs IST
In what may be seen as a sobering effect, inflation marginally dipped to 11.89 per cent for the week ended July 12. Inflation has softened somewhat with prices of many essential items either declining or remaining static.

While non-food articles rose 0.8 per cent during the week under review, both food articles and primary articles were up 0.6 per cent, with coffee rising by 8 per cent and fruits and vegetables 2 per cent. Tea was, however, down by 2 per cent, while fuel and power remained unchanged.

The trend for the past three weeks connotes that the rate of inflation is stabilizing a bit. The figure for the week ended July 12 is quite in line with the rate of inflation for the week ended July 5, 2008 that stood at 11.91 per cent, marginally higher than the rate of 11.89 per cent reported a fortnight ago.

With early signs of stabilization in tandem with the marginal rationalization in the oil prices and the rupee bounce, it is expected that the Reserve Bank of India may choose to maintain status quo in the forthcoming credit policy on July 29. If at all, the industry feels that RBI may choose to increase the repo rate by 25 basis points as oppose to an increase of 50 basis points that was being anticipated a couple of weeks earlier.
Last month, the central bank had raised short-term lending rates for banks-- repo-- by 0.75 per cent in two installments, while also increasing mandatory cash deposits of banks by 0.50 per cent in two phases to suck out excess liquidity.

For the week ended July 5, the annual inflation rate for the group of 30 essential commodities had declined to 5.74 per cent from 5.98 per cent reported a week earlier. This week too, the stabilization has been reported in prices of essential commodities which include foodgrain, pulses, edible oils, vegetables, dairy products and some other commodities including kerosene, soap and safety matches.

The annual inflation has declined to 9.92 per cent in the primary articles group during the week ended July 5 compared to 10.84 per cent reported a week earlier.

The positive vibes notwithstanding, this however, would be the 22nd consecutive week that the inflation rate has been above 5.5 per cent, the central bank's target for the end of the fiscal year in March 2009.