26.10.09

Inflation at a 20 week high

The annual rate of inflation, as measured by the wholesale price index (WPI), touched a 20-week high of 1.21% for the week ended October 10 after a marginal increase in the costs of food and manufactured items, a government release showed. Inflation was 0.92% the week before. However, the inflation’s steady climb should not worry the Reserve Bank of India (RBI), only days before its monetary policy review on October 27, as it has already accommodated a yearend 5% mark in its policy. The central bank is likely to tinker with its policy stance only if there is some dramatic change. Some economists, however, think the RBI may have to raise its inflation forecast, given the recent spike in the index. “We expect the RBI to revise up its WPI inflation projection from ‘around 5.0%’ by end-March 2010 to ‘around 6.5%’. Apart from a low base effect, firm food prices, rising oil and other commodity prices, strong money supply growth and rising demand are setting the base for higher inflation,” said Sonal Verma, an economist with financial services firm Nomura. Within the government too, there is growing concern over the rising inflation. While releasing the economic outlook for 2009/10 on Wednesday, C Rangarajan, chairman of the prime minister’s economic advisory council (EAC), said an unambiguously spelt-out strategy and a clear time frame for returning to more normal monetary and fiscal times will curb inflationary pressures. Despite the warning, the EAC ruled out any need for any change in fiscal or monetary policy. The government is a slated to release the WPI inflation data on a monthly basis from November 14. But clarity is yet to emerge on when India will move to a new WPI. ”It has not been decided when can we do the updating of the base year and widening of the product basket for the new WPI,” Pronab Sen, the country’s chief statistician, said in the capital while talking to the media on the sidelines of the India Forecasting Forum. The government will continue to report weekly numbers for primary articles, which includes food items and fuels.

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