Inflation dips to 8.5 pc for Aug under new WPI series

Headline inflation dropped significantly in August although high food prices continued to be a matter of concern for the government and mounting pressure on the central bank.

Headline inflation dropped significantly in August although high food prices continued to be a matter of concern for the government and mounting pressure on the central bank which is scheduled to review the monetary policy on Thursday.

Headline inflation rose to 8.51% in August,according to the new Wholesale Price Inflation (WPI) series with a base year of 2004-05 released by the government on Tuesday. It was partially higher at 9.78% in July.

But despite the marginal respite in overall inflation,the government continued to maintain its vigil over food prices. Pointing out that inflationary pressure continued due to high food prices,finance minister Pranab Mukherjee indicated that further monetary tightening could be on the cards.

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Even though the good news of lower inflation is reported today,yet there is no room for complacency… (government) will continue to bring it down further… We must continue to be vigilant and be prepared with the instruments of fiscal and monetary policy to use them as and when the need arises, he said.

As per the old series with a base year of 1993-94,the WPI inflation stood at 9.5% in August. The final inflation figures for June was also higher at 11.06% as against the provisional figure of 10.55%.

However,Planning Commission deputy chairman Montek Singh Ahluwalia was more optimistic,In case of the old index also,the annual rate of inflation is coming down but year-on-year level seems to be lower. The real question is that will this decline continue? I think it will, he said.

The Reserve Bank of India has raised key rates by 100 basis points since March this year in a bid to curb inflation and most analysts expect it to continue with its hawkish stance,but ruled out an immediate increase in rates.

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Year-on-year,food articles became dearer by 14.64%,while prices of non-food articles likes fibres and oilseeds soared by 16.04%. Minerals became 23.82% more expensive. On an annual basis,prices of potatoes declined by 47% and onions by 6.7% in August,while rice was up by 8.49%.

The kharif harvest is expected to ease food prices. Deloitte Principal economist Shanto Ghosh said,In an absolute sense,inflation is high. Unless there is significant softening in prices across the board,it will be a tough challenge for the government to meet the 5.5 per cent inflation target.

As per the new WPI index that tracks 676 commodities in contrast to the old index which was based on 435 commodities,inflation was 0.31% in August 2009.