Tue, 17 Apr 2012 08:58:39 GMT

Food prices surge, but overall inflation eases

NEW DELHI, APRIL 16: Inflation eased marginally to 6.89 per cent in March, following some moderation in the prices of manufactured products. The wholesale price index (WPI)-based inflation was 6.95 per cent in February 2012. It was 9.68 per cent in March 2011.

Food prices surge, but overall inflation eases

However, as per the WPI, food inflation rose sharply to 9.94 per cent in March, against 6.07 per cent in February. The Finance Minister, Mr Pranab Mukherjee, said: "Food inflation in the month of March has increased, which is a disturbing factor." He said it would have been "more comforting" had the overall inflation for March been in the range 6-6.5 per cent. The manufactured products inflation was 4.87 per cent in March, lower than 5.75 per cent last month. Fuel inflation eased to 10.41 per cent, from 12.83 per cent in February.

Inflation in overall primary articles rose to 9.62 per cent in March from 6.28 per cent in February.


The latest inflation data have raised expectations of a repo rate cut by the Reserve Bank of India on Tuesday win its monetary policy announcement on Tuesday. The RBI is likely to go in for a symbolic 25-basis-point repo rate cut, given the recent muted industrial output growth numbers.

Any reduction beyond 25 basis points is unlikely, as there is a view that monetary policy tightening was not the fundamental reason for corporate investments slowing down.

Although a 25-basis-point cut would help boost investment sentiment, economy-watchers said regulatory uncertainty, environmental clearances and land acquisition issues need to be tackled to boost investments.

Also, the RBI's approach to cash reserve ratio (CRR) will, to some extent, depend on how it perceives the credibility of the Centre's fiscal consolidation efforts. It has already cut CRR, the quantum of bank deposits that must be maintained with the RBI in cash, by 125 basis points in two stages since January to 4.75 per cent.


Meanwhile, the Centre has revised the WPI-based inflation number for January to 6.89 per cent from 6.55 per cent earlier.

Although overall inflation eased in March, vegetables and pulses turned costlier. Onion prices declined by 24.23 per cent, but pulses went up by 10.05 per cent. Vegetables rose steeply by 30.57 per cent, with potato up 11.60 per cent. Milk, too, became costlier by 15.29 per cent. To tame inflation, the RBI had increased policy rates 13 times, totalling 350 basis points, between March 2010 and October 2011. It had taken a pause since then on the repo rate front. Headline inflation was near double digits for the most part of 2010 and 2011.

Source: Hindu Business Line

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