For first time in 13 weeks inflation dips to 11.99%

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New Delhi, Oct 3 (UNI) Resuscitating hopes that inflation rate was stabilising, the headline inflation rate for the week ended September 20 fell to 11.99 per cent against 12.14 per cent in the previous week, helped by a downward movement of the major group 'primary articles.' However, for the major group 'Manufactured Products', which has a weight of 64 per cent, the index increased by a small 0.1 per cent.

The index for 'Primary Articles' was down by 0.2 per cent. The 'Fuel, Power, Light and Lubricant' group--the third major group- the index remained unchanged as compared to the previous week.

The inflation rate for the week ended September 13 was the same as the previous week before it. A fall in the index by 0.15 was a probable indicator that the price level was stabilsing. This is buttressed by the fact that inflation has fallen below 12 per cent for the first time in the last 13 weeks.

The index for 'Food Articles' group was up largely due to higher prices of fish-marine (6 per cent), tea and bajra (2 per cent each) and milk (1 per cent).

Inflation in the same period during the previous year at 3.51 per cent, however, was signficantly lower. Thus, inflation continues to be high because of the low base year effect.

Inflation is still at an elevated rate and the big question is what the Central Bank will now do in its monetary policy statement on October 24, 2008.

The answer to this question will be pegged on certain key parametres.

First, the rupee has fallen as the credit market turmoil in the United States prompted overseas funds to pull out money from Indian stocks, with investors withdrawing a record 9.22 billion dollars since January, pushing the key stocks down by as much as 37 per cent.

The rupee declined by 16 per cent this year, which makes it the second worst performer among the top ten most active Asian currencies, excluding the yen.

Secondly, it has to take note of the fact that Central Banks from Australia to Japan have pumped cash into their money markets and promised to take more steps to alleviate a credit shortage after the collapse of some of the biggest banks on Wall Street, including Lehman Brothers Holdings Inc. The US Senate this week approved a 700 billion dollars financial-rescue package for the nation's lenders.

Asia's Central Banks have already started to cut interest rates to spur growth. Taiwan reduced borrowing costs on September 25, joining China, Australia and New Zealand in easing borrowing costs this month.

But, which way the apple cart will tilt is a matter to be seen.

Yet, the experience of the Indian banking system is that economic considerations alone do not determine the monetary policy.

In this regard, suffice it is to say that inflation rate is high on the antena of policy makers, prices being an extremely sensitive issue in Indian politics, especially when elections are not too far away.


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