Inflation Softens – Food Prices Rise

For the week ending 4 Oct’08, headline (wholesale price index, WPI) inflation was 11.44%, lower than market’s estimate (11.9%). Inflation for 9 Aug ’08 was revised upwards 19bps to 12.82%. [Did the Government manipulate ? Is their metrics / procedure buggy ?]

Prices of basic food articles such as food grains, cereals, fruits and vegetables remain firm. Vegetable prices have moved up considerably on a week over week basis. The fall in inflation is due to the fall in non-administered petro and manufactured products.

Inflation has corrected much faster than anticipated. The fall in international commodity prices, the main driver of inflation in India in recent times, is the key to this. Going ahead, the steep fall in international crude prices to half its peak value could drive a cut in domestic administered petro prices, in turn lowering inflation.

Will the RBI cut interest rates to boost the Capital Expenditure Cycle and Business Confidence ? Probably it could once the Inflation numbers are firmly below 10%. However, rising prices of daily food articles is still a cause of concern.

Related Reading:
Exclusive – Constituents of the Indian Inflation Index.