Inflation falls, government hopes for further moderation

New Delhi, Sep 4: With inflation moderating to 12.34 percent for the week ended Aug 23 from 12.4 percent the week before, India Thursday hoped for further softening of inflationary trends.

Commerce and Industry Minister Kamal Nath said the government would look for measures to improve the supply side, and expected inflation to moderate further in weeks or months.

“The government will look into the supply side stress. We have taken certain steps, which appear to be working. It will continue to take effect in coming weeks and months,” Nath told reporters here on the sidelines of a function.

“Decline in the prices of rice, most of the pulses and mustard oil resulted in moderation of inflation rate for essential commodities,” said the finance ministry in a statement Thursday.

"Inflation of 30 essential commodities also declined to 6.9 percent as on the week ending Aug 23 from 7.24 percent reported in the earlier week," said the ministry.

The fall in inflation rate also coincided with a report by the United Nations Conference on Trade and Development (Unctad) released Thursday, which predicted “high and volatile” prices for food during the year.

Incidentally, the Prime Minister's Economic Advisory Economic Council (EAC) in its “Economic Outlook Report 2008” has said: “Co-ordinated policy action can bring inflation down to 8-9 percent by March 2009.”

EAC has projected that Indian economy, viewed against high inflationary trends, would be able to log 7.7 percent growth rate in the current fiscal against nine percent in 2007-08.

Indian economy grew at 7.9 percent in April-June this fiscal as compared to 9.2 percent during the last corresponding period, showing Asia's third largest economy, after China and Japan, in the grip of global economic slowdown.

The week ended Aug 23 was the second successive week that the inflation rate has come down after weeks of relentless rise, touching 12.63 percent mark for the week ended Aug 9.

To rein in inflation, India's central bank - the Reserve Bank of India (RBI) - July 29 had raised the repo rate or the rate which the central bank lends money by 50 basis points to nine percent, and the cash reserve ratio or the minimum balance a bank has to keep as reserve, by 25 basis points to nine percent.

The wholesale price index (WPI) or the price index for all commodities to measure inflation released by the ministry of commerce and industry Thursday put WPI at 240.3 (provisional) from 240.2 (provisional) for the previous week.

The price index for primary articles declined 0.4 percent, while that of manufactured products rose 0.2 percent. The price index for fuel, power, light and lubricants remained unchanged at 376.2 (provisional).

The finance ministry said out of a total of 98 primary articles, 18 articles such as rice, moong, masur, arhar, and urad (all Indian varieties of pulses), tomatoes, groundnut and mustard have shown a decline in prices.

The annual rate of inflation based on the final index, calculated on a point-to-point basis, stood at 12.03 percent for the week ended June 28, as compared to 11.89 percent (provisional).

The price index for non-food articles rose 0.4 percent due to higher prices of raw silk (14 percent), raw cotton (three percent) and copra (one percent). The prices of tea moved up three percent and that of egg, condiments and spices one percent each.