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  3. Inflation falls marginally to 6.89% in March; food inflation rose to 9.94%

Inflation falls marginally to 6.89% in March; food inflation rose to 9.94%

16 Apr 2012 Evaluate

Coming in a tad higher than expected, the headline inflation rose by 6.89% in March from a year earlier, mainly driven by higher food prices. However, manufacturing inflation, which is the key number that the RBI will look at before taking a stance on monetary policy, has come in much lower than expected hence fuelling expectations of a rate cut.

 According to the data released by the government, headline inflation as measured by the wholesale price index (WPI) in the month of March grew by a 6.89% as compared to 6.95% for the previous month and 9.68% during the corresponding month of the previous year. The inflation rate for January too was revised upwards to 6.89% as compared to 6.55% (Provisional). 

The 'All Commodities' index (Base 2004-05=100) for the month of March rose by 0.9% to 159.8 from 158.4 for the previous month. The major dampener was the inflation in food items which was 9.94% in March, as against 6.07% in February.

Manufacturing inflation moderated to 4.87%, from 5.75%. As stated earlier, this is the number that the RBI will be looking at before announcing its monetary policy. Since this has shown a declining trend, a rate cut seems eminent.  The RBI is widely expected to cut its main lending rate - the repo rate - by 25 basis points to 8.25% when it reviews policy tomorrow.

Year-on-year, among manufactured items, iron grew dearer by 17.18% and edible oil prices rose by 9.78%. Inflation in tobacco products and basic metals was 8.22% and 9.51% respectively.  Non-food primary articles, which include fibres and oilseeds, was however lower at (-) 1.20% in March. In February, it was (-) 2.56%. Inflation in the fuel and power segment was 10.41% on an annual basis. The rate of price rise was 12.83% in the previous month.

Experts are of the view that inflationary pressure, driven by prices of food articles will keep the pressure on the government to remove supply side bottlenecks.

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