Inflation rises to 3.79%; may dampen rate cut chance
WHOLESALE price-based inflation rose marginally to 3.79 % for the week ended January 5, after remaining at 3.5% for two weeks in a row. The rise was mainly on account of some fuel items like coking coal, non coking coal, furnace oil, naphtha and manufactured products like butter, coffee, edible oil became dearer during the week under review. This is even as prices of seasonal commodities like fruits and vegetables came down. Though, inflation was way below the 6.37% recorded a year ago, analysts expect RBI not to soften its monetary policy stance this month. This is because inflationary clouds are still looming over the economy, in the wake of a possible hike in fuel prices. The Prime Minister’s Economic Advisory Council too has projected inflation to go above 4 %, if prices of petrol and diesel are raised. CRISIL director and principal economist D K Joshi said though inflation has gone up marginally it will remain range bound due to a combination of tight monetary policy and currency appreciation which will make imports cheaper and contain price rise. However in the wake of rising inflationary expectations it is unlikely RBI will take any interest rate cut, he said. “RBI would not ease monetary policy. It is going to keep all the key rates unchanged in its upcoming review,” HDFC Bank chief economist Abheek Barua said. Economists feel keeping fuel prices untouched would help in containing inflation artificially but would distort the fiscal position of the government. “In the backdrop of strengthening crude prices in the global market, which is ruling above $90 per barrel, the under recoveries of oil companies are mounting. The companies are bailed out by the government by issuing oil bonds which is an off-budget liability on government. Thus, any delay in taking decision on passing on burden would result in a fiscal cost,” said Mr Joshi.