Inflation snapshot

India’s inflation rate held near an 11-month low as demand slowed and oil and commodity prices eased. Wholesale prices climbed 5.64% in the week to 17 January from a year earlier after gaining 5.60% the previous week, the commerce ministry said . Economists expected an increase of 5.4%. Inflation has halved from a 16-year high in August and is likely to slow further after the government cut fuel costs for the second time in less than two months.
RBI governor D. Subbarao this week lowered the central bank’s inflation forecast for the year ending 31 March to 3% from 7%. He also cut his growth forecast to 7% and signalled that RBI may add to four interest rate cuts since October to buoy expansion in India. Subbarao has slashed the Reserve Bank’s benchmark repurchase rate by 350 basis points to 5.5%. The central bank may cut interest rates by a further 50 basis points by March, said Sonal Varma, an economist at Nomura International Plc. in Mumbai. One basis point is a hundredth of a percentage point.
The index of manufactured goods, with a 63.75% weight in the inflation basket, rose 6.21% from a year earlier, after gaining 5.9% in the previous week. The fuel price index declined 1.43%, compared with a decline of 1.32%. Oil prices have tumbled 54% in the past year as fuel demand falls because of the global recession. The decline in fuel prices has come as a relief to India, which relies on overseas purchases to meet three-quarters of its energy needs.
Prime Minister Singh, facing elections before May, has reduced taxes on consumer products and announced larger infrastructure spending plans to steer South-Asia’s biggest economy through the slowdown .