Cheers!! Inflation down to single digit - November 2008

The inflation rate fell sharply to a near six-month low of 8.98% for the week ended November 1, a drop of almost 4% from its August peak.

The decline is due to less demand in the market for the commodities.The decline, helped by a steep drop in prices of some petroleum products and metals, will provide a welcome relief to the central government reeling under a raft of bad news on the economic front from falling exports and a drop in tax collections. Politically, this could help the government ahead of key state elections later this month.

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Inflation as measured by the wholesale price index (WPI) — the most watched inflation measure — dropped 1.74% from 10.72% in the preceding week, official data from the Office of the Economic Advisor in the ministry of commerce and industry showed. It hit a peak of 12.91% in early August, but still remains more than double the 3.35% inflation seen in the same week last year.

“I was surprised by the quantum of fall in the fuel index. After consolidating around this level for coming weeks, I expect the inflation number to drop to the 8% territory by end-November,” said ICRA economist Saumitra Chaudhari and a member of the prime minister’s economic advisory council.

The fall in fuel prices, especially those which are not government-controlled, is expected to have a positive impact for the manufacturing sector, going forward since fuel is a key input cost for industry. For instance, the cost of jet fuel comprises almost 40% of the operational cost of an airline.

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Food prices inched up marginally during the period, rising 0.1%, but analysts expected the food articles index to move down in coming weeks, given the forecasts for a robust winter harvest.

Crisil principal economist DK Joshi said that the slowdown in the economy meant that both demand-supply side pressures were easing and inflation would not emerge as a major concern until the overall economic growth revived.

We can also get a cut in fuel prices as government is thinking about a fuel price cut. It may be noted that Crude oil prices have come down to US$ 58 level when compared to $ 147 levels few months back. so more drop in inflation is predicted by me in coming future due to possible fuel price cut by indian government.

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-Indian Agricultural Updates
-Effect of Recession on Indian economy

- with extracts from economictimes.com