Inflation falls marginally to 12.40%

28 Aug, 2008, 1800 hrs IST
Giving a little respite to the hapless consumers, inflation slipped marginally to 12.40 per cent for the week ended August 16 from 12.63 per cent a week before.

Earlier Lehman Brothers expected inflation to increase to 12.82 per cent y-o-y from 12.63 per cent in the previous week, due to higher prices of food articles, rubber, sugar, paper products, oilseeds, textiles & rubber and plastic products.

"We expect the final WPI inflation to peak in Oct/Nov at around 13.5-14.0 per cent, but to stay in double-digit territory until February 2009. Based on our forecast of slower GDP growth of 7.3 per cent in FY09, our energy team's forecast of the price of oil falling sharply to $90/bbl in Q1 2009, plus favorable base effects, our forecast is that WPI inflation will start turning down decisively in January 2009," it said in a report.

It is the 27th consecutive week the inflation rate has been above 5.5 per cent, the RBI's original target for inflation at the end of the fiscal year in March 2009.

At a policy review in late July, the RBI raised its key lending rate by 50 basis points to 9 per cent and also increased banks' reserve requirements, and said it was now aiming to bring inflation down to 7 per cent by the end of March.
The government has said the inflation rate would hit 13 per cent and thereafter start moderating from December, before settling at 8.0-9.0 per cent by the end of the fiscal year in March.

A slide in prices of oil, India's biggest import, to around $117 a barrel from a record high above $147 in mid-July, is expected to ease the pressure on inflation.

However, analysts said pressure from primary articles and strong demand despite the several rounds of policy tightening would most likely propel inflation higher for some months.