Inflation at 3-year low; rate cut hopes rise

New Delhi, April 15 (IANS) India’s headline inflation fell below six percent for the first time in more than three years on the back of slower rise in the prices of manufactured and primary articles, boosting hopes for a rate cut by the Reserve Bank of India next month, government data showed Monday.

Inflation based on Wholesale Price Index (WPI) fell to 5.96 percent in March, the lowest level since November 2009.

The headline inflation was recorded at 6.84 percent in the previous month and 7.69 percent during the corresponding month of last year, according to data released by the ministry of commerce and industry.

Reacting on the monthly data, Planning Commission Deputy Chairman Montek Singh Ahluwalia said inflation was slowly coming under control.

“Inflation behaviour is consistent with what the government has been saying that it is slowly coming under control,” Ahluwalia told reporters.

Manufactured products inflation that has 64.97 weight in the WPI index eased to 4.07 percent in the last month of fiscal 2012-13 as compared to 5.16 percent recorded during the corresponding month of previous year.

Primary articles based inflation eased to 7.6 percent in March 2013 as compared to 10.41 percent in the corresponding month of last year.

“The softening of headline WPI inflation to a three-year low can mainly be attributed to cooling down of primary articles (particularly food) inflation,” said Bhupali Gursale, an economist at Angel Broking.

Food inflation fell to 8.73 percent during the month under review as compared to 10.11 percent in the corresponding month of last year. Vegetables became cheaper by 0.95 percent year-on-year. Fruit prices increased at a slower rate of 4.71 percent.

Core inflation has also inched lower to 3.4 percent in March reflecting the decline in commodity prices on a year-on-year basis as well as weak pricing power.

Analysts said the March inflation data would give enough room to the central bank to cut interest rates next month. The Reserve Bank of India is scheduled to announce its annual monetary policy for 2013-14 May 3.

“Owing to the positive trend in inflation, we believe there is scope for a 25 basis points rate cut in the RBI’s annual policy May 3,” Gursale said.

Expressing a similar view, Federation of Indian Chambers of Commerce and Industry (FICCI) president Naina Lal Kidwai said: “Going ahead we expect this trend (decline in inflation) to continue and this should give more space to RBI for considering a cut in the policy rates. Particularly noteworthy is the fact that non-food manufacturing inflation continues to remain under restrain.”

President of the Associated Chambers of Commerce and Industry (Assocham) Rajkumar Dhoot said the RBI must cut rates to propel growth.

“While inflation control is one of the main responsibilities of the central bank, ensuring that growth does not fall to a dismal level is also its key task,” Dhoot said.

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