Inflation slips to 5.07 pc; more scope for RBI to cut rates

Falling prices of fruit and vegetables and certain manufactured items pulled down inflation after a gap of two weeks, to 5.07 per cent, raising hopes of a further cut in policy rates by the Reserve Bank.

Inflation, measured by movement in wholesale prices, dropped by 0.57 percentage points for the week ended 24th January from 5.64 per cent a week earlier, mainly on account of softening prices of food items like coffee and khandsari and metal products like iron and aluminium.


Having declined for 10 consecutive weeks, the rate of price rise moved up to 5.60 per cent for the week ended 10th January and inched up further to 5.64 per cent the next week.


When asked by reporters on how he as former Finance Minister views the fall in inflation, P Chidambaram, who is currently Home Minister, said, "Very happily."



Falling inflation after a gap of two weeks, Axis Bank economist Saugata Bhattacharya said, "gives more leeway to the Reserve Bank to go in for further rate cuts. The central bank might slash the repo and reverse repo rates by 50 basis points in the coming days."


Crisil Principal Economist D K Joshi too opined "decline in inflation certainly provides more scope for a further cut in policy rates by the RBI."



The drop in inflation during the reporting week has been mainly on account of fall in prices of vegetables, which dipped by 2.7 per cent. Fruit too became cheaper by 1.2 per cent.


A sharp dip was also visible in metal prices, with basic metals and alloys down 6.1 per cent, iron and steel by 8.3 per cent and non-ferrous metals by 4.8 per cent. The prices of aluminum also declined by 7.9 per cent.


Coffee powder and khandsari became cheaper by one per cent each, while prices of woollen cloth went down by 2 per cent.


However, the important items that became expensive during the week include oil cakes (11 per cent), scented chewing tobacco (8 per cent), rape and mustard oil (4 per cent), baby food (3 per cent) and imported oil and sugar (one per cent each).


In the paper and paper product groups, prices of pulp rose by 18 per cent.


The fuel index too rose by 0.6 per cent on account of higher prices of naphtha (15 per cent) and furnace oil and light diesel oil (two per cent each).


Inflation for the week ended 29th November was revised downwards to 7.86 per cent from 8 per cent in the provisional estimates.