There Are Chances That In 2 Weeks, Positive Base Impact May Play Role In Bringing Inflation Down: Experts
THE annual inflation rate rose yet again, to a fresh three-and-a-half-year high of 7.61% for the week ended April 26, government data showed on Friday. Inflation measured as a change in the wholesale price index (WPI) from its level in the corresponding week a year ago, was a tad lower at 7.57% in the previous week.
For the moment, it looks like the worst in yearon-year terms. The price index has moved up for all items by 7.61%, including primary articles (8.8%), manufactured goods (7.42%) and the fuel, power, light and lubricants group (6.9%).
However, what’s heartening is the week-onweek rise that has definitely cooled down. From the week ended April 19 to the week ended April 26, prices have risen much slowly by 0.08%, compared to the 0.8% week-on-week rise in early March. In the second week of March, week-on-week increase in the price index had fallen to 0.5%. In April, it had come down to 0.3% and 0.26%. However, last week, when experts were expecting it to come down to 0.1%, it went up again to 0.3%.
A worried government came out with another slew of measures, including banning futures trade in potato, rubber, soya oil and chana, and persuaded steel companies to take a price cut.
Experts feel there are chances that in the coming two weeks, positive base impact may play some role in bringing inflation down. In May 2007, inflation had gone up significantly in the first week by 0.4 points to 212 from 211.6.
“The inflation figure of 7.61% could be reaching a peak in year-on-year terms because there will be a high base effect in the next week. Hopefully, if we stick with the 0.1% week-on-week increase in price index, we should be at 7.25%, and may be 7%, before May is out,” Deutsche Bank south Asia regional head Sanjeev Sanyal said.
Reacting to inflation numbers, finance minister P Chidambaram said inflation will stay at the current level for some time before it shows a downward trend, and the current levels indicate that inflation is stable. He stated the government is in the process of asking cement companies to cut prices and may take further administrative steps if necessary. Some experts, however expressed doubts whether the trend of moderation in weekon-week price movement will continue, in the wake of rising inflationary expectations.
The pace of inflation on a week-on-week basis has been moderating. The whole point is whether it will remain volatile. There are expectations that the base effect could help in next two weeks, however it will remain short-lived since lower base effect will come into picture again. It will push the inflation to a higher level,” Crisil Principal economist D K Joshi said.
Besides there are inflationary expectations looming over the economy due to the falling rupee and spiralling crude oil prices. This would raise cost of imports, said Mr Joshi.
The possibility of further rise in CRR in the wake of rising liquidity due to falling currency is not ruled out.
Kotak Mahindra Bank chief economist Indranil Pan said, “With inflation consistently above the 7% level, it is safe to assume that the central bank will actively take liquidity tightening measures.
In its annual monetary policy announced on April 29, the central bank raised the Cash Reserve Ratio (proportion of deposits that banks must set aside) by a quarter point to a seven-year high of 8.25%, effective May 24.
The commerce ministry on Friday revised the inflation rate for the week ended March 1 to 6.21% from 5.11%. The government revises the rate from two months ago after receiving additional price data.