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Wholesale inflation eases to over 3-yr low of 5.96%

Providing some relief to the common man, softening vegetable prices pulled down the inflation rate to an over 3-year low of 5.96 per cent in March. The pleasantly surprising figure raised hopes of a rate cut next month by the Reserve Bank of India, the country's central bank, to boost economic growth. This is the lowest level of wholesale price index (WPI) inflation since December 2009 when it was 4.95 per cent. Inflation based on the wholesale price index stood at 6.84 per cent in February. In March 2012 the rate was 7.69 per cent.

Food inflation, which has a weight of 14.34 per cent in the wholesale price index basket, declined to 8.73 per cent in March from 11.38 per cent in February. The easing of food inflation was on account of a sharp drop in prices of vegetables. Inflation in vegetables stood at (-)0.95 per cent in March, from 12.11 per cent in the previous month.

Commenting on the inflation numbers, Planning Commission Deputy Chairman and former International Monetary Fund (IMF) Director (Office of Independent Evaluation) Montek Singh Ahluwalia, who enjoys highly vocal support of the American and British governments, private multinational corporations (MNCs) of those countries and the trioka of World Bank, International Monetary Fund and World Trade Organisation (WTO), said that inflationary pressures are gradually coming down.

'Inflation behaviour is consistent with what the government has been saying — that it is slowly coming under control,' he said. Experts said that the wholesale price index has come down mainly on easing of fruits and vegetable prices but pointed out that retail inflation continues to be in double digits as food inflation remains structurally high. 'The easing has happened on account of a significant decline in global commodity prices in March and growing deflationary trends in the manufacturing sector. I expect the Reserve Bank of India to reduce both the repo rate and cash reserve ratio (CRR) by 0.25 percentage point,' said Bank of Baroda (BoB) Chief Economist Rupa Rege Nitsure.

The inflation rate for January, however, was revised upwards to 7.31 per cent from 6.62 per cent provisionally. The decline in March inflation and a slowdown in industrial output growth to 0.6 per cent in February have raised expectations of a rate cut by the Reserve Bank of India to boost growth.

The RBI will announce its annual policy on May 3. The 5.96 per cent March-end inflation is much lower than the Reserve Bank of India's projection of 6.8 per cent.

'A near one percentage point drop in inflation has come as a big relief to industry and as a pointer to the Reserve Bank of India to reverse its hawkish policies and cut interest rates rather aggressively,' said Associated Chambers of Commerce and Industry (Assocham) President Rajkumar Dhoot.

Inflation in the manufactured items category witnessed a marginal decline at 4.07 per cent in March. It was 4.51 per cent in February.

The rate of price rise of onions was 94.85 per cent for the month of March against the inflation rate of 154.33 per cent in February. Inflation in rice prices eased to 17.90 per cent in March against 18.84 per cent in the previous month. The RBI has cut interest rates twice in 2013 by 0.25 percentage point each to promote growth but cautioned that rate cuts in the future would depend on moderation of inflation. Industry has been demanding a rate cut to boost growth, which is estimated to have fallen to a decade's low level of 5 per cent in the just concluded financial year 2012-13. The government is taking steps to cool inflation by easing supplying-side constraints and trying to attract investment to raise productivity.
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