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Inflation falls to 6.87% in July

Inflation,as measured by the Wholesale Price Index,was 9.36% in July last year.

Mumbai |
August 14, 2012 12:45:15 pm

Inflation in July moderated to 6.87 per cent – lowest since November 2009 – helped by decline in vegetable prices,even as food inflation stayed in double digit and manufactured items remained under price pressure.

Though the inflation has moderated in July,from 7.25 per cent in June,it remains much above the 5-6 per cent comfort level of the Reserve Bank.

While the drop in the inflation number has come as a surprise,common households continue to pay high prices for edible items.

Inflation,as measured by the Wholesale Price Index (WPI),was 9.36 per cent in July last year.

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While inflation for vegetables has eased in July as compared to June,the wholesale prices are still high above the comfort level. The annual rate of price rise was 24 per cent in July,though it was 49 per cent in the June.

Food inflation,which accounts for nearly 15 per cent in the overall inflation basket,was at 10.06 per cent in July,easing a little from June’s 10.81 per cent,as per official data released today.

Manufacturing or core inflation rose to 5.58 per cent in July from 5 per cent in June,on the back of high prices of cotton textiles,paper and paper products,cement and lime.

Higher inflation in this category would restrict the scope of RBI to go in for an interest rate cut even as economy is showing signs of slowdown,experts said. RBI Governor D Subbarao had yesterday said that inflation over seven per cent is above the tolerance level and stressed on the need for containing price pressure. Commenting on inflation number,Planning Commission Deputy Chairman Montek Singh Ahluwalia said,”the dip is welcome but inflation is still above the comfort level. 5 to 6 per cent is tolerable level of inflation”.

Experts,however,said that the dip in inflation was unexpected and that deficient- monsoon and supply constraints would keep the number high in the coming months.

The drought-like situation in some parts of the country could affect agricultural production and may have its impact on prices of essential commodities,according to Food Minister K V Thomas.

As on August 12,overall rainfall deficit for the country as a whole was 16 per cent.

Research firm Nomura said that the dip in inflation was “largely due to lower inflation in the volatile vegetable category and lower fuel prices. We do not see today’s positive WPI reading as a reason for the RBI to cut rates”.

The RBI would come out with its mid-quarter monetary policy review on September 17.

In food articles category,potatoes turned expensive by 73 per cent,rice by 10.12 per cent,cereals by 8.29 per cent and pulses by 28.26 per cent on annual basis in July.

Besides,eggs,meat,fish prices were up by 16 per cent. Inflation in milk prices was 8.01 per cent and for vegetables it was 24.11 per cent.

“The rise in the price level month-on-month for pulses and cereals reflects the below-normal sowing on the back of a rainfall deficit and rising minimum support prices,” ICRA Senior Economist Aditi Nayar said.

However,the pressure on prices of onions and fruits declined during July. While inflation in fruits was negative at (-)0.15 per cent,for onion it was (-)9.81 per cent. Among the non-food articles,inflation in fibres was high at 5.89 per cent,oil seeds at 25.22 per cent and minerals at 8.43 per cent.

High inflation has forced RBI to keep interest rates unchanged in its last two monetary policy reviews,even as economic growth slowed to a nine-year low of 5.3 per cent in the January-March quarter.

Inflation along with weak demand in the western markets have also affected the country’s exports.

Hit by demand slowdown in western economies,exports in July contracted 14.8 per cent to USD 22.4 billion.

India Inc stepped up its demand for a rate cut with the recent decline in inflation. “The RBI should immediately look at bringing down interest rates as inflation has been declining in the last two months.

The time now is to pep up investments and simultaneously address supply side constraints,” Ficci President R V Kanoria said.

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