Inflation lowers but food items prices skyrocket

Annual inflation fell to a three- decade low of 0.26 per cent, although prices of essential food items rose by up to 17 per cent, shows data released just days ahead of the country going to general elections.

Wholesale prices-based inflation declined by 0.05 percentage points for the week ended March 28 from 0.31 per cent in the previous week.

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Even as the point-to-point inflation is near zero level, the average rate of price rise works out to be 8.4 per cent for the fiscal 2008-09 against 4.7 per cent in 2007-08.

Edible items like salt, sugar, milk, cereals, pulses, manufactured food products, spices and fruits were selling at higher rates for the week under review than a year ago.

In the backdrop of fall in sugarcane production, sugar prices soared by 17 per cent leaving a bitter taste. Inflation has become a key election issue, with political parties promising cheap rations for the poor.

Salt prices too went up by 10.68 per cent, milk by 6.22 per cent, cereals by 9.61 per cent, pulses 8.46 per cent and fruits by 8.02 per cent. However, drop in prices of minerals, metals, fuel, power and lubricants helped pull down the over all inflation to a three decade low.

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With the inflation dropping to such a low, analysts feel that the Reserve Bank of India may signal further cut in interest rates. RBI Governor D Subbarao reviewed the interest rate scenario with the heads of commercial banks in Mumbai yesterday.

"Inflation is low due to crisis in demand and crisis of confidence. It is low (also) due to base effect," said economic research body, RIS' Director-General Nagesh Kumar.

The Finance Ministry described the year-on-year price rise as "stable". It said the inflation of primary articles declined for the week ended March 28, 2009 from the previous week.

However, there was 3.46 per cent point-to-point annualised price rise for these articles. Further disaggregation of food articles shows that several items were selling at higher prices.

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source - www.economictimes.com