Inflation up at 1.51% justifies RBIs monetary policy stance

Written by fe Bureaus | New Delhi | Updated: Oct 31 2009, 05:17am hrs
Inflation rose fastest in six months to 1.51% for the week ended October 17 from 1.21% in the previous week. The wholesale price index-based inflation rose despite a high base year inflation rate of 10.82% during the same week last year. Analysts expect it to touch 7% by March 2010.

While warning of inflationary pressures, especially the food inflation, the Reserve Bank of India (RBI) raised its 2009-10 inflation target to 6.5% from 5%. RBIs projection of 6.5% inflation is realistic, said Crisil principal economist DK Joshi.

Food prices continued to soar on yearly basis. Food stuffs turned costlier by 12.85%, with potato prices soaring by 97.73%, onion 45.26%, sugar 45.73% and pulses 22.92%. The RBI said there are clear signs of rising inflation stemming largely from the supply side, particularly from food prices. Already inflation has risen at the rate of 5.95% so far from the beginning of this fiscal.

Many economists are, however, hopeful about food prices coming down as on weekly basis these have started declining. Food prices declined 0.07% on weekly basis as mainly vegetables and sea fish prices came down. However, some items like cereals and pulses may remain costly.

Price of primary articles have begun to come off which could be a seasonal phenomenon. Prices of frozen food is likely to remain stable, although cost of cereals, pulses may remain elevated, Yes Bank chief economist Shubhada Rao said.

The index being steady is good news. If steel and oil prices remain under control, then inflation should be well within the central banks target levels. We hope that this trend in inflation continues, and to a certain extent we do believe that this trend will continue. The worst seems to be over, said Axis Bank economist Saugata Bhattacharya.

During the week ended October 17, prices of mutton, tea, maize, arhar, moong, condiments and spices rose by 1% each. Among manufactured goods, imported edible oil and gur turned expensive by 4% each, rice bran oil by 3% and oil cakes by 2%.

However, prices of butter and groundnut oil declined by 2% each and ghee by 1%. In the fuel category, bitumen prices moved up by 2%.