The Hindu Business Line : Inflation worries recede as number hits 18-week low

New Delhi, Oct. 16 With focus shifting to the tightening of liquidity conditions and threat of a slowdown, inflation worries are clearly receding to the background.

The annual inflation rate, based on the wholesale price index (WPI), has hit an 18-week low of 11.44 per cent for the week ended October 4.

This is the third successive week that has seen a decline in the headline inflation number. For the earlier weeks ended September 27, September 20 and September 13, the year-on-year increase in the WPI amounted to 11.80 per cent, 11.99 per cent and 12.14 per cent respectively, after scaling a high of 12.91 per cent during the week ended August 2. That the above declining trend is not the result of any statistical illusion is borne out from the fact of the ‘all-commodities’ WPI falling in absolute terms to 239.6 for the week ended October 4, from 240.7, 241 and 241.1 in the preceding three weeks and the peak 241.4 level of 241.4.

The coming weeks are likely to witness a further easing of inflationary pressures mainly on account of the slide in global commodity prices in conjunction with a drying up of domestic liquidity.

This would be the reverse of the earlier situation of unabated price rise, which had both an ‘imported’ as well as excessive domestic liquidity components.

Extent of fall

The extent of drop in world commodity prices can be gauged from crude oil at the New York Mercantile Exchange (Nymex), which is trading now at below $75 a barrel from the all-time-high $147.27 reached on July 11. Likewise, wheat, soybean and corn at the Chicago Board of Trade (CBOT) have plunged to $5.5, $8.5 and $3.8 a bushel, from their respective peaks of $13.495 (February 27), $16.3675 (July 3) and $7.9925 (June 27).

The pass-through effect of all this will be felt in the domestic markets in the coming days. In some commodities, such as edible oils, this process has already begun and which will show itself in the ensuing WPI numbers.

Among the major groups constituting the all-commodities WPI, the inflation rate for ‘manufacturing’ has dropped below double-digits to 9.69 per cent for the latest recorded week ended October 4, from the previous week’s corresponding 10.33 per cent.

The inflation rate has also come down from 16.52 per cent to 14.64 per cent for ‘fuel, power, light & lubricants’, while going up from 11.17 per cent to 12.68 per cent in the case of ‘primary articles’.

Significantly, the latest WPI data was issued by the Office of the Economic Adviser in the Ministry of Commerce and Industry here on Thursday before noon, as against the normal time of 6 p.m. in the evening.

The early release of better-than-expected inflation numbers is believed to have played some part in arresting the massive sell-off in the markets. The Sensex, which opened 790 points down, had trimmed its losses to 228 points at the close of trading.

Related Stories:
Inflation rate drops on cheaper agri items