Decline in non-food inflation revives hopes of rate cut

Costlier food items, petrol push up inflation marginally to 6.84 % in February

After touching a three-year low in January, inflation inched up marginally to 6.84 per cent in February on the back of costlier food items and petrol. In February 2012 it was 7.56 per cent.

Inflation based on the Wholesale Price Index (WPI) had declined to a three-year low of 6.62 per cent in January.

In the case of manufactured goods, inflation has moderated to 4.51 per cent in February as compared to 5.82 per cent in the same month in the previous fiscal, making a case for easing of the monetary policy by the Reserve Bank of India (RBI) in its mid-quarter review on March 19.

Food and primary articles have shown higher annual price rise of 11.38 per cent and 9.70 per cent, respectively, led by expensive onion (154.33 per cent) and potato (45.99 per cent). Besides, wheat, vegetables, rice and cereals became dearer.

Prime Minister’s Economic Advisory Council Chairman C. Rangarajan said the RBI would take into account the decline in inflation in the case of non-food article group in its review.

“Clearly the decline in manufacturing inflation is the critical number that monetary authorities look at. Therefore, there is comfort in that direction,” he added.

Fifth month

Retail inflation moved up for the fifth consecutive month to 10.91 per cent in February, remaining in the double-digit terrain for the third month in a row, on account of higher prices of vegetables, edible oil, cereals and protein-based items.

As per official data, rate of price rise in the case of LPG cylinder during the month was 26.21 per cent as against 4.28 per cent in the previous month while in case of petrol it was 6.25 per cent as compared to 3.77 per cent in January.

Girija Shivakumar adds:

Reacting to the inflation figures, India Inc is pushing for a cut in repo rate to revive sluggish gross domestic product (GDP) growth that hit a decade’s low of 4.5 per cent in the third quarter of 2012-13.

Reversal of trend

Incidentally, this increase in the WPI-based inflation has reversed its four months of declining trend. The gap between WPI and CPI (Consumer Price Index) has been widening mainly on account of food prices and remains a cause for worry. The CPI inflation was 10.91 per cent in February against 9.14 per cent a year-ago.

Naina Lal Kidwai, President, Federation of Indian Chambers of Commerce and Industry (FICCI) proposed the ‘removal of bottlenecks to ease supply of food and goods (this is) vital to tame inflation’ to control spiralling food prices.

“This gives room to the Reserve Bank of India to bring down interest rates and complement the intention of the Union Budget to enhance investments. This will help uplift sentiment of India Inc. The green shoots are certainly on the horizon and a concerted push in investment can help bring India back on the growth trajectory,” she added.

While fiscal consolidation steps taken by the government are likely to encourage growth enhancing monetary measure, India Inc. is keen to address the structural changes that are required, including deregulation of diesel prices.