Key rates decision after analysing Inflation problem root - RBI

The Reserve Bank of India's (RBI) monetary stance will depend on whether it perceives inflation as stemming from excessive liquidity or due to supply constraints, the country's top civil servant said.

On Tuesday, Cabinet Secretary K.M. Chandrasekhar allayed concerns of persistently high prices, reiterating the government's forecast of headline inflation easing to 5-6 percent by the end of the year.

India's annual headline inflation stayed above 10 percent for the fifth straight month in June, cementing expectations the RBI will raise interest rates for a second time this month to contain price pressures.

A majority of economists expect the RBI to raise key interest rates by 25 basis points in its quarterly review on July 27 and tighten policy further in coming quarters, a new Reuters poll showed.

"A call will have to be taken by the Reserve Bank (RBI) on whether inflation is on account of high money supply or is it on account of certain sectoral reasons, some supply constraints," Chandrasekhar told a news conference.

Some analysts have pegged capacity constraints in the rapidly expanding economy as the main reason for a surge in non-food inflation, pointing out a slowdown in May industrial output, despite robust domestic consumer demand.

Further, expansion in the M3 money supply, the broadest measure of liquidity in the system, has just picked up after slowing down since the year began and lags credit expansion.

Inflation at 1.74 percent YoY

The wholesale price index (WPI) is forecast to have fallen 1.74 per cent in the 12 months to August 1, steeper than the previous week's decline of 1.58 per cent, a poll showed on Wednesday.

It would be the ninth straight annual fall in the wholesale price based index, but this is widely seen as a statistical effect caused by sharply higher prices a year earlier.

The index has been rising on a weekly basis since March and analysts said it probably climbed in the week ended Aug. 1, mainly due to rising food prices.

The central bank has also said price pressures are building up, suggesting there was little chance for rate cuts. Weak monsoon rains are also expected to put upward pressure on prices.

source - economictimes

Wholesale Inflation at all time low of 0.44 percent

Inflation for the week ended March 7 fell to an all time low of 0.44%. The sharp fall in inflation was due to several factors including easing prices of food articles and fuel items along with a high base effect. Annual inflation as measured by Wholesale Price Index (WPI) was at 2.42% in the week before and at 7.78% in the corresponding week last year.

The inflation for food articles eased considerably to 7.34%. It had touched a 10-year high of 11.64% in the beginning of the year. Prices of food articles for the week ended March 7 touched the lowest since the beginning of the year.

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The sharp fall in annual inflation as measured by fuel index was due to fall in prices of jet fuel and electricity for agriculture each of which fell by 8%. The fuel prices are currently witnessing negative inflation to the range of 6% and are expected to dip further into negative territory.

The higher base effect along with low demand in the economy is expected to keep inflation in negative territory for 5 to 6 months." Inflation will turn negative starting from April and will remain so until the end of 2009," said Tushar Poddar, an economist with Goldman Sachs Inc. in Mumbai. "We expect the Reserve Bank to ease liquidity" to support growth. The International Monetary Fund (IMF) said this week India should rely more on monetary policy to support the economy as high public debt makes fiscal efforts difficult.

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Retail inflation as measured by the consumer price index for industrial workers has moved up to 10.45% in January, the highest since December 1998. The consumer-price index for farm workers increased 11.62% in January from a year earlier, following an 11.14% in December. The central bank said this month consumer prices will decline after a lag, without specifying a time frame.

The commerce ministry today revised the rate for the week to Jan. 10 to 5.46 percent from 5.60%.

posted under - inflation updates, indian economy blog, economy of india, indian inflation updates, march inflation updates, economic crises updates

Inflation for week inches Up - due to trucker's strike

Breaking the 10-week down ward streak, whole sale price inflation for the week ended January 10 inched up to 5.6% on the back of firmer food prices. The inflation for food items has touched a 10-year high of 11.64% as the trucker's strike, which went on from January 5 to 12, made food items costlier. Wholesale price inflation was at 5.24% in the week before and was at 4.36 % in corresponding week last year.

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Economists dismissed the spike in inflation as a blip in the easing trajectory of inflation. More than 5 million Indian truckers have gone on strike from January 5 to 12 creating a shortage for food items and making it costlier over the week. Vegetables became costlier by almost 19% over the week while the prices of fruits and cereals also moved up. Inflation for food items moved up by one and a half percentage points from the previous week’s levels.

The 10-year benchmark bond yields closed at 5.84 %, after inflation came slightly above market expectations. The yields have touched a high of 6% in the morning trade. The 10-year bond yields is a percentage point above record low of 4.86% of January 5, following rate cuts by the central bank.The yields of ten year papers closed at 5.89% on Wednesday.

posted under - Indian inflation updates, inflation january 2009, inflation in india, Indian inflation updates, indian economy blog, inflation updates