International BusinessInflation turns positive after three months
Primary articles, especially food items, pushed the headline inflation rate, as measured by the wholesale price index (WPI), into positive territory at 0.12 per cent for the week ended September 5, after staying in the negative for 13 weeks.
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The inflation rate rose marginally from -0.12 per cent a week ago, and 12.42 per cent for the corresponding period in 2008.
Most analysts expected the inflation rate to turn positive when the base effect runs out of steam by the end of the current month.
“The primary articles category, especially the food items, are exerting incremental pressure. Weak monsoons have led to speculative activities especially in the perishable items like fruits, vegetables, eggs and milk, which have added to the pressure. Rise in prices of food grains is primarily due to supply side problems,” said Subhada Rao, chief economist with Yes Bank.
Economists, however say that even though the Reserve Bank of India is already concerned about the inflation rate, a neutral monetary policy will continue until there are stronger indications of economic recovery.
In its July policy review, the central bank left its key policy rate unchanged after cutting it by 425 basis points between October and April.
“I do not think that the RBI will react to inflation figures as of now. Other factors like demand and credit will have to be taken into consideration as far as monetary policy is concerned,” said DK Joshi, principal economist with Crisil, a research and ratings firm.
“The manufacturing index is not exerting any inflationary pressure. Therefore, the demand for manufactured products has not yet picked up. So, I expect some selective measures like increasing margins for lending against select commodities, but more or less it will be neutral,” Rao added. However, most analysts say that the point-on-point inflation rate will be much higher than RBI’s July estimate of 5 per cent by the end of this year.