Millennium Post

‘RBI must factor in low prices while fixing interest rates’

Satisfied over the easing of inflation, Planning Commission Deputy Chairman Montek Singh Ahluwalia on Friday said that the Reserve Bank of India (RBI) should take into account the improvement in the price situation while deciding on interest rate cut in its mid-quarter policy review due on Monday to boost growth.

‘Certainly, 4.7 per per cent for the month is better than we had expected. I think it does indicate that there is distinct downturn on inflation which is welcome,’ Ahluwalia told reporters.

The wholesale price index-based inflation fell to 4.7 per cent in May, driven mainly by decline in prices of manufactured items, even as prices of food articles inched up.
Inflation based on the wholesale price index (WPI) stood at 4.89 per cent in April. In May, 2012, it was 7.55 per cent.
Asked whether the Reserve Bank of India should consider the easing of inflation in its mid-quarter review next week, he said, ‘They should certainly consider it because it is very clear that the underline inflationary pressure is softening.’

The industrial output in April showed a very modest growth of 2.3 per cent, down from 3.4 per cent in March.
According to Ahluwalia, food inflation in the longer period is also coming down. Inflation in food articles category, which has a 14.34 per cent share in the wholesale price index basket, rose to 8.25 per cent in May. Inflation in this category was at 6.08 per cent in April.
‘If you look at the components of inflation, the food prices increase has slightly gone up. This is the base level effect I was referring to earlier,’ Ahluwalia explained.

‘Inflation is softening. I think the number is lower than it was last year. The good news is that the non-food inflation has really gone down much more than you thought it would. I think the base level effect will wear out in the years ahead,’ he added.
The non-food articles category, which include fibre, oil seeds and minerals, saw sharp decline in inflation to 4.88 per cent in May from 7.59 per cent in April.
Agencies

Agencies

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