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Wholesale price index (WPI)-based inflation for January touched a three-year low of 6.62 per cent, down from 7.18 per cent last December.
The fall of WPI inflation — the main gauge for inflation in India — is expected to give the Reserve Bank of India more elbow room to effect another policy rate cut in March, say economy-watchers.
Annual WPI-based inflation was 7.24 per cent in November 2012 and 7.23 per cent in January 2012. Core inflation for January 2013 came in at 4.1 per cent, lower than 4.2 per cent in December 2012.
Diesel effect
The diesel (administered) price increase on January 21 is understood to have impacted headline inflation by 10-12 basis points.
C. Rangarajan, Chairman of the Prime Minister’s Economic Advisory Council (PMEAC), said inflation movement in January was in the right direction. The PMEAC hopes overall inflation to trend down to 6.5 per cent by end March. There will be further softening of inflation in the coming months, according to Rangarajan.
However, he pointed out that retail inflation — at over 10 per cent — was high and may be factored in before the RBI takes a call on monetary easing.
If the trend noted in inflation continues over the next four weeks, the weight would be more on the side of relaxation (in policy rates), he said.
Rate trim possibility
Economy watchers say March will be a good opportunity for the RBI to look at another rate cut.
But the consensus is that, given the current account deficit situation, there may be no space for the RBI to go on a rate-cutting spree this year. At the most, the central bank may go in for another 25-basis-point trim in policy rates in March, they said.
The slide in WPI inflation comes close on the heels of the Central Statistics Office pegging the advance estimate for GDP growth for 2012-13 at 5 per cent. However, top policymakers, including Rangarajan, believe GDP growth will be higher than 5 per cent this fiscal.
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