Inflation eases for 3rd week in a row; at 12.10%

Written by Economy Bureau | New Delhi, Sep 11 | Updated: Sep 13 2008, 05:15am hrs
Inflation fell for the third week in a row to 12.10% for the week ended August 30 but analysts said it is yet to peak as the price pressures persist. Even as the inflation declined, the finance ministry pointed to an increase in prices of 30 essential commodities including wheat, salt and sugar. Finance ministry officials said that inflation may rise till December but it will come down sharply by March.

Inflation stood at 12.34% in the previous week of this fiscal and at 3.72% during the corresponding week of the previous year. Analysts say that at this juncture any hike in RBIs short term lending rate could be ruled out but the central bank has scope to tighten cash conditions, as credit growth remains high.

The Reserve Bank of India governor Duvvuri Subbarao has said in his maiden speech on Tuesday that the inflation rate was showing some moderation but it was too early to conclude whether it represents a discernible trend.

Its too premature to say that inflation has peaked. I feel in the third quarter the risks to the inflation scenario remain from foodgrain prices. Credit growth is still not adequately controlled, says Bank of Baroda chief economist Rupa Rege Nitsure. Inflation will peak around 13.5-14% in the third quarter and the central bank will continue with its tightening mode, especially the CRR, she said.

The government has revised upwards the provisional inflation figures for the week ended July 5 to 12.19% from 11.91%. Lehman Brothers chief economist Sonal Varma says that with commodity prices cooling down, cost pressures may ease in the coming month.

We do not expect any further repo rate hikes, she said. Repo rate is the rate at which RBI lends short-term funds to other banks. The impact of inflation on markets could not be gauged as the data came after market hours.

In the food articles group, imported edible oil prices, which had been rising quite a bit, declined by 4%, giving some breather to the government. Besides, prices of fruits, maize and spices went down.

However, inflation rate for 30 essential commodities increased to 7.52% during the week from 6.90% in the earlier week. There was an increase in the prices of sugar, salt, wheat, arhar, urad, jowar and bajra.