Date:10/01/2009 URL: http://www.thehindu.com/2009/01/10/stories/2009011059321600.htm

Business

Inflation drops sharply to 5.91 per cent

Special Correspondent

NEW DELHI: The rate of inflation dropped sharply to 5.91 per cent for the week ended December 27 from 6.38 per cent the previous week, mainly owing to a decline in prices of food articles and manufactured goods as a result of the 4 per cent across-the-board cut in excise duty effected earlier in the month.

Alongside, aiding in the sharp dip in the price spiral were other factors such as the falling prices of various commodities in the international market and the cut in administered prices of petrol and diesel in keeping with the declining cost of crude oil.

With the Wholesale Price Index-based inflation dipping for the ninth straight week to sub-6 per cent for the first time in 10 months, expectations are on for yet another cut of about 50 basis points in key policy (repo and reverse repo) rates by Reserve Bank by the middle of February.

It was only last week that RBI slashed its short-term lending (repo) and borrowing (reverse repo) rates by 100 basis points to 5.5 per cent and 4 per cent respectively and also reduced the CRR (cash reserve ratio) of scheduled banks by 50 basis points to 5 per cent effective January 17.

The bank is slated to come out with its quarterly review of monetary policy on January 27.

However, there is apprehension that the inflation rate may break the downtrend and inch up again owing to the impact on wholesale prices if the transporters’ strike continues for a few more days.

According to National Council for Applied Economic Research senior fellow Rajesh Shukla, if the truckers’ strike continued for three to four days more, “there would be a rise of 50 basis points in inflation.”

He noted that the supply of agricultural output, particularly vegetables and milk, was getting affected due to the strike and there could be shortages of perishable goods in the coming days.

Among the major items that witnessed a decline in prices during the week were fruit and vegetables, eggs, imported edible oils and newsprint. However, other items such as khandsari, unrefined groundnut oil and pulses turned costlier.