Inflation rate rises on costlier food, fuels

Inflation rate rises on costlier food, fuels
Hindu Business Line, November 15, 2009, Page 3

First monthly report shows Wholesale Price Index doubling to 1.34%.

Our Bureau, New Delhi

In an ominous start to the Government’s first monthly release of prices report, the Wholesale Price Index-based inflation in October rose to 1.34 per cent, more than double from the previous month, as minerals, fuels and certain food items became expensive.

While inflation in October was 1.34 per cent from the year earlier period, it was only 0.5 per cent in September, according to the data released by the Commerce and Industry Ministry on Saturday. In October 2008, inflation was 11.06 per cent.

Thanks to the stimulus packages and the festival demand, industrial output recorded an unexpectedly high growth of 9.1 per cent in September from a year earlier. This industrial recovery has led to speculation of the government exiting stimulus packages. Analysts now expect the Reserve Bank of India to increase borrowing costs by January. Notably, the WPI has jumped by 6.13 per cent since the beginning of this fiscal in April. Also, the Consumer Price Index that accords a higher weightage to food and essential items was as high as 11.72 per cent in September.

In a bid to give a more accurate picture of the price movements, the Government shifted on Saturday to the monthly release of inflation data for all commodities with 1993-94 as the base year. Earlier, the Government used to bring out inflation data every week.

Potato prices have doubled in October from the same month last year, while onions were dearer by 37.6 per cent. Vegetables were costlier by 17 per cent, pulses (23 per cent), sugar (45.7 per cent) and rice (13.22 per cent) and wheat (6.88 per cent). Nomura economist Ms Sonal Varma said, “Prices of some vegetables have declined in the first two weeks of November and therefore we might see a decline in food price soon.” Food prices fell by 1 per cent in October over September, while prices of vegetables declined by 17 per cent. But minerals were dearer by 3 per cent during the same period, while onions turned expensive by 30 per cent and potatoes 11.18 per cent. Ms Varma said inflation could touch eight per cent by March 2010 with crude prices picking up again. “Prices of manufactured products are likely to go up due to increase in input costs.

“We expect interest rate hikes to start from January 2010 onwards. Recent statements by the RBI show that the central bank is concerned about inflation. There could also be some liquidity tightening measures before that,” Ms Varma said. Last moth, the RBI raised its projection of WPI-based inflation to 6.5 per cent with an upward bias by March-end 2010, from the earlier 5 per cent.