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Updated: February 14, 2012 23:36 IST

Inflation eases to 6.55 per cent in January

Special Correspondent
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Labourers work at a cast iron factory on the outskirts of Jammu. The Indian economy struggles to balance a toxic mix of high inflation and slowing growth. File photo
Labourers work at a cast iron factory on the outskirts of Jammu. The Indian economy struggles to balance a toxic mix of high inflation and slowing growth. File photo

Much to the government's respite, headline inflation eased to a 26-month low at 6.55 per cent in January from 7.47 per cent in December, 2011, owing to a further fall in vegetable prices, prompting Finance Minister Pranab Mukherjee to scale the benchmark lower at 6 per cent from the earlier estimate of 7 per cent for the fiscal year ending March.

With overall inflation, as measured by the wholesale price index (WPI), witnessing a sharper-than-expected fall in January, 2012, from 9.47 per cent in the same month last year, Mr. Mukherjee expressed cautious optimism on further moderation in the coming months though he felt that softening in the prices of manufactured goods, despite the rapid decline in non-food primary inflation, “may be more gradual”.

"I think it [headline inflation] should be further reduced since it is still not at the acceptable level ... [I] now expect that the March-end 2012 inflation will be closer to 6 per cent,” Mr. Mukherjee said while pointing to concerns over the price trend of other commodities such as edible oils, milk and protein-based items which could stoke inflation yet again.

“The main worry going forward is on edible oils, milk and some animal proteins which may continue to threaten food inflation, as the required institutional reforms in agricultural marketing and improvement in storage and cold chains will operate with a lag … these are areas where States have to take a lead and take advantage of Central government initiatives … announced in the last two Union budgets,” he said.

The Finance Minister's worry on this count is not misplaced. The WPI data show that food inflation was in negative zone at (-) 0.52 per cent in January owing to cheaper vegetables such as potatoes and onions, which were down 23.15 per cent and 75.57 per cent, respectively, year-on-year. However, prices of edible oils and milk during the month were up 9.59 per cent and 12.6 per cent, respectively, while that of eggs, meat and fish was still higher by 18.63 per cent on a yearly basis. Moreover, manufactured goods, which account for a weight of about 65 per cent in the WPI basket, continued to cost more. As per the data, inflation in manufactured items stood pegged at 6.49 per cent in January year-on-year, as against 7.41 per cent in the previous month. Inflation in overall primary articles, however, stood lower at 2.25 per cent during the month as compared to 3.07 per cent in December, while in non-food primary articles, it moderated to 0.55 per cent from 1.48 per cent in the previous month. In such a scenario, as to whether the Reserve Bank of India will go ahead with a cut in interest rates during its mid-quarterly review next month remains a question mark.

Keywords: inflation

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