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January inflation cools down to 4-year low at 6.62%

14 Feb 2013 Evaluate

In a pleasant surprise, the wholesale price index (WPI), India's main inflation gauge, cooled down to four year low at 6.62% (Provisional) for the month of January, 2013 as compared to 7.18% for December and 7.23% during the corresponding month of the previous year. Build up inflation in the financial year so far was 5.09% compared to a build-up of 6.15% in the corresponding period of the previous year. This positive surprise for the markets notwithstanding, the Reserve Bank of India (RBI) is likely to move cautiously on monetary easing in March policy review.

As per the government data, manufactured products, which carry weight of almost 65% in the index, rose by 0.2% to 148.3 (Provisional) from 148.0 (Provisional) for the previous month. The index for ‘Food Articles’ group declined by 0.7% to 165.9 from 167.1 in the previous month.

While, the index for primary articles group, which has a weightage of 20.12% in overall WPI and includes food, non-food and minerals group rose by 0.6% to 221.4 from 220.0 of the previous month. The index for ‘Food Articles’ group rose by 0.8% to 213.8 from 212.2 in the previous month, while, the index for ‘Non Food Articles’ group declined by 0.3% at 202.3 (Provisional) from 202.9 (Provisional) for the previous month. However, the index for ‘Minerals’ group rose by 1.8% to 347.0 (Provisional) from 340.8 (Provisional) for the previous month.

Inflation has been trending down for the past 4 months, with respite seen on the 'core' component. The core inflation for January came in at 4.1%, lower than 4.2% in December last year. However, the widening wedge between WPI and CPI remains to be noted. Earlier this week data showed that retail inflation remained in double digits at 10.79% in January, driven by higher prices of vegetables, edible oil, cereals and protein-based items.

Meanwhile, March inflation, which is expected to be lower than RBI’s projection could give the apex bank the required comfort to go ahead and slash rates by 25 basis points in March. India’s central bank lowered its key policy rate for the first time in nine months in January, but struck a cautious note on further easing as it waits to see how the government’s upcoming budget aims to bring a bloated fiscal deficit under control.

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