16.10.12

Inflation @ a 10 - month high !



Headline inflation accelerated to a 10-month high in September, dampening hopes of a rate cut by the central bank this month. The annual rate of inflation, as measured by the wholesale price index, rose to 7.8% from 7.6% in August on the back of a steep rise in fuel inflation to 11.9% from 8.3% in the previous month.
The government, which is battling high fiscal deficit, has been nudging the Reserve Bank of India to cut rates to prop up economic growth, but economists say the central bank will be cautious. Adding to the bank’s worries is the upward revision of the inflation figure for July to 7.5%, from 6.9% estimated earlier.
Core inflation, which excludes food and fuel inflation and reflects demand pressures in the economy, remained unchanged at 5.6%, outside the RBI’s comfort range of 5%.
The central bank is due to review its monetary policy on October 30, but expectations of a rate cut have started receding after data released on Friday showed industrial production grew 2.7% in August from 0.2% contraction in July.
The acceleration in inflation will further dampen hopes though the government is confident that inflation will moderate soon. Independent experts say inflation could rise further before coming down.
Some experts say that if the RBI does ease monetary policy, it would be largely because of the recent measures taken by the government, which include raising of diesel prices, easing of FDI rules for many sectors and an attempt to address tax-related concerns.
The majority of experts, however, feel the RBI may go for another cut in the cash reserve ratio (CRR), the percentage of deposits banks must park with it. Last month, the central bank cut the CRR to 4.5%, resisting pressure to cut key rates to revive the struggling economy, which rating agency Standard & Poor’s said faces a one-in-three chance of a downgrade to junk status within next 24 month.
The International Monetary Fund last week said it expected the economy to expand 4.9% in 2012, down from its earlier projection of 6.2%.
Overall wholesale prices in the April-September period rose 4.6%, compared with 4.48% in the same period last year.
Within the food basket, despite potatoes being 50% costlier than last year, overall inflation in vegetables contracted to 6.78% from 10% in August.

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