Inflation slips to 2-year low of 7.47 on falling food prices

Drop reflects improvement in overall macroeconomic parameters,says FM

Slower food prices cut inflation in December to 7.47 per cent,its lowest rate in two years,but costs of fuel and manufactured goods eased little from the previous month. The Wholesale Price Index,published by the government on Monday,had shown inflation at 9.11 per cent in November. The headline rate was 7.15 per cent in December 2009.

Finance Minister Pranab Mukherjee continued to hope that overall inflation would fall to between 6 and 7 per cent by March but worried over the prices of manufactured goods.

Manufactured inflation and inflation in the power group of items have also declined,though only marginally,and therefore continue to be a cause of concern, Mukherjee said.

Food prices in December were 0.74 per cent higher than a year earlier,having been 8.54 per cent higher in November than twelve months previously. Vegetables,whose inflation fell from 12 per cent to -34.18 per cent,led the slowing in prices of primary articles. Inflation for manufactured goods,which make up 64.97 per cent of the index,trimmed 0.29 percentage points from the previous month to 7.41 per cent.

Chemical prices were 9.82 per cent higher than a year earlier,having been 9.49 per cent higher than twelve months previously in November. Inflation for metals dropped 0.05 percentage points to 12.96 per cent,while the figure for machinery shed 0.60 per centage points to 2.87 per cent. Prices of processed foods were 6.03 per cent higher than a year earlier,having been 6.75 per cent higher in November than their levels twelve months previously.

Inflation for transport equipment fell from 4.59 per cent to 4.50 per cent while the figure for cotton textiles shed 3.88 per centage points to 5.32 per cent. Growth in power and fuel costs,which make up nearly 15 per cent of the index,slipped to 14.91 per cent from 15.48 per cent in November. Inflation for manufactured goods is typically more sensitive to interest rates than the growth of primary costs,which respond more to supply shifts.

The Reserve Bank of India left interest rates unchanged in December after raising lending costs 13 times since March 2010.

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C Rangarajan,chairman of the Prime Ministers Economic Advisory Council,said the RBI would also have to watch manufacturing inflation when considering a cut in interest rates.

Bankers not very hopeful of a rate cut
Mumbai: Although WPI inflation declined to 7.5 per cent in December as against 9.1 per cent a month earlier,bankers dont expect any reduction in policy rates in the forthcoming monetary policy review by the Reserve Bank of India as manufacturing inflation is still high and industrial production has recovered.

SBI chairman Pratip Chaudhuri said chances of the RBI going for a rate cut in the immediate future are unlikely. I am not very hopeful, Chaudhuri said when asked about the possibility of an interest rate cut by the apex bank. According to Indian Overseas Bank chairman and managing director M Narendra,the RBI is unlikely to go for any review of policy rates like repo rate in January in view of the latest developments.

Chances of a policy rate review are less. The RBI may not even reduce cash reserve ratio as it prefers open market operations OMO to infuse liquidity, he said. ENS