Ashok Dasgupta

Due to lower prices of vegetables, sugar and crude edible oil

Fall in inflation will be reflected in monetary policy review: RBI Governor

Inflation could be contained at seven per cent earlier than projected

NEW DELHI: The rate of inflation slipped further to eight per cent for the week ended November 29 from 8.40 per cent a week earlier on account of lower prices of food and other articles, paving the way for the Reserve Bank of India to concentrate on more measures to stimulate economic growth rather than containing the price spiral.

With the 40-basis point drop in the wholesale price index-based inflation – the fifth straight week of decline to a seven-and-a-half month-low — the Finance Ministry attributed the fall mainly to lower prices of vegetables, sugar, crude edible oil, raw rubber and lead ingots.

Cascading effect

In fact, the inflation rate is expected to slide sharply in coming weeks. First the cascading effect of the cut in petrol and diesel prices would be reflected in the WPI data for the week ended December 5 to be released next week. Following this, the four per cent across-the-board cut in excise duties would lead to lower prices of almost all manufactured products that would be captured in the data for subsequent weeks.

During the week, fruits and vegetables, gram, barley, unrefined oil, gur, rapeseed and mustard oil turned cheaper even as the indices of other items either rose or remained unchanged. In fact, the prices of unrefined oil prices fell by 12 per cent, vegetables by 3.5 per cent, fruits by 0.5 per cent and gur by three per cent.

However, ragi, urad, bajra, maize and groundnut oil turned dearer.

Since the collapse of Lehman Brothers in the U.S. in mid-September, the RBI has been taking steps to ease money supply and make available cheaper credit so as to minimise the impact of the global slowdown on various sectors of the economy.

“Comfort level” also possible

With the current downtrend in prices, the RBI’s target of containing inflation at seven per cent by the end of the fiscal is likely to be achieved much earlier than projected. Analysts are of the view that the broader target of taming the spiral to the “comfort level” of five per cent may also be achieved.

Speaking in Kolkata, RBI Governor D. Subbarao noted that the fall in inflation rate would be reflected in the apex bank’s monetary policy review slated for the last week of January next. Meanwhile, inflation for the week ended October 4 has been revised up to 11.49 per cent from 11.44 estimated earlier.