Fuel price cut drags inflation further to 1-year low of 4.39%

Fuel price cut drags inflation further to 1-year low of 4.39%
The Economic Times, February 13, 2009, Page 7

Our Bureau NEW DELHI

REFLECTING the recent cut in fuel prices, inflation dropped to a 12-month low of 4.39% for the week ended January 31, 2009, leaving room for the central bank to slash interest rates further to lift industrial production levels that are currently on a downward spiral.

On Thursday, yields from 10-year bonds fell to the lowest in more than a week, on the back of expectations of a rate cut. Given the demand slump and the contracting industrial output, inflation rates will only fall from here on, rating agency Crisil principal economist DK Joshi said.

“If the current scenario continues, India might get into a deflationary scenario by Marchend for a brief period,” he said.

However, the annual rate of increase in prices of food products was still close to the 10-year high though there was some moderation in prices over the week. The wholesale price index (WPI)-based annual rate of inflation was 5.07% in the week before and at 4.74% in the corresponding week last year.

The fuel price index, which has a weightage of 14.23% in WPI, showed a 3.1% drop over the week due to lower prices of petrol (11%), liquefied petroleum gas (8%) and diesel (7%).

The government had cut retail fuel prices of petrol, diesel and LPG by Rs 5, Rs 2 and Rs 25, respectively, in the last week of January. The fuel index is currently 3.53% below its level last year.

Food articles also became marginally cheaper over the week as the impact of the trucker strike — which lasted eight days in the beginning of January and had pushed up the annual rate of inflation in food articles to a 10-year high — eased out. Fruit and vegetables, along with spices and condiments, got cheaper by 3% each over the week. However, the annual inflation on food articles, which is at 11.48%, still remains close to 10-year high on account of prices of certain cereals which firmed up.

Annual inflation in manufactured products eased to touch 5.26% for the week from 5.37% the week before. Analysts are expecting the prices of manufactured items to ease further as the second round impact of fuel price cuts gets factored into the prices.