Inflation eases further to 6.55% in Jan’12, hopes reinforced on rate cuts

India’s headline inflation slipped to a more than 2-year low in January, giving some relief to the policy-makers and the Reserve Bank of India (RBI) scope to cut interest rates in the forthcoming policy review to counter weakening economic growth. Headline inflation, as measured by the Wholesale Price Index (WPI), fell to 6.55% In January 2012 as compared to 7.47% in December 2011. The numbers were broadly in-line with the generally expected number of 6.7% and have confirmed the downward movement of prices.

As per data released by the Ministry of Commerce and Industry, the annual rate of inflation for ‘all commodities’, based on monthly WPI (Base: 2004-05 = 100), stood at 6.55% (Provisional) for the month of January, 2012 (over January, 2011) as compared to 7.47% (Provisional) for the previous month and 9.47% in January 2011. Build-up inflation in the financial year so far was 5.48% compared to a build-up of 8.58% in the corresponding period of the previous year.

Primary articles index was up by 0.9% for January 2012 as compared to December 2011. The index for ‘Food Articles’ group rose by 0.3% to 191.4 (Provisional) from 190.8 (Provisional) for the previous month due to higher prices of fish-marine (11%), bajra (7%), jowar, barley and maize (5% each), poultry chicken (4%), masur (3%), mutton (2%) and milk and wheat (1% each). However, the prices of condiments & spices (5%), tea (4%), fruits & vegetables (3%) and moong, urad, gram, ragi and rice (1% each) declined.
 
The index for ‘Non-Food Articles’ group rose by 2.4% to 182.8 (Provisional) from 178.6 (Provisional) for the previous month due to higher prices of gaur seed (35%), flowers (16%), logs & timber (10%), soyabean (9%), groundnut seed and linseed (7% each), raw jute (6%), rape & mustard seed (4%), niger seed and gingelly seed (3% each) and safflower, raw silk and mesta (1% each).  However, the prices of castor seed (7%), raw rubber (6%), copra (4%), raw cotton (3%) and sunflower (1%) declined.

The index for ‘Minerals’ group rose by 1.9% to 324.5 (Provisional) from 318.5 (Provisional) for the previous month due to higher prices of sillimanite (22%), zinc concentrate and iron ore (4% each), magnesite and crude petroleum (2% each) and barytes (1%).  However, the prices of dolomite (2%) declined.
Inflation numbers for fuel and power rose by 0.1% in January as compared to December 2011, due to higher prices of light diesel oil (4%), lignite (3%) and naphtha (1%).  However, the prices of bitumen (1%) declined.

The much awaited numbers of inflation in manufactured products showed a rise of 0.4% m-o-m. The index for ‘Food Products’ group rose by 0.3% and that for ‘Beverages, Tobacco & Tobacco Products’ group rose by 0.4%. Inflation numbers in the textile sector rose by 0.4% m-o-m and by 0.2% m-o-m for ‘Wood & Wood Products’ group. Inflation for the ‘Paper & Paper Products’ group rose by 0.2% and that for ‘Leather & Leather Products’ declined by 0.2% for Jan 2012 as compared to December.

Further the index for ‘Rubber & Plastic Products’ group rose by 0.8% and for ‘Chemicals & Chemical Products’ group rose by 0.7%. The index for ‘Non-Metallic Mineral Products’ group rose by 0.3% and for ‘Basic Metals, Alloys & Metal Products’ group rose by 0.8%, m-o-m. The index for ‘Machinery & Machine Tools’ group rose by 0.1%.

The final numbers for November were revised up to 9.46% from 9.11%. The WPI is more closely watched than the consumer price index (CPI) in India as it covers a higher number of products. C Rangarajan, Chairman of the Prime Minister's Economic Advisory Council stated that the fall in inflation numbers was welcome but it would be wiser to wait and watch at this stage. The finance minister too said that the numbers could fall further in the coming months.

The Reserve Bank of India has raised interest rates 13 times since March 2010 in a bid to bring down inflation, putting a dampener on industrial activity and slowing economic growth. Inflation was in double-digits for most of 2011 before easing in December, fuelled by surging food prices. Moreover, economic growth in India has slowed sharply and is expected to be around 6.9% for the current financial year to March.