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Inflation eases to 7.25 percent; food prices remain high

Monday July 16, 2012 06:45:17 PM, IANS

New Delhi: India's headline inflation fell to a five-month low of 7.25 percent in June as compared to 7.55 percent in the previous month, but general food prices remained stubbornly high, giving little relief to the common people and economic policy makers, the government data showed Monday.

With food prices pushing up and overall inflation remaining much above the comfort zone, the Reserve Bank of India is unlikely to cut interest rates when it reviews the monetary policy at the end of this month.

The monthly inflation, based on wholesale price index (WPI), revised upward to 7.50 percent for April from 7.23 percent reported earlier, according to data released by the ministry of commerce and industry.

The WPI based inflation was 9.51 percent in June 2011.

Although there is some softening in overall inflation, stubbornly high food prices remain a big concern for the policy makers. Food inflation rose to 10.81 percent in June as compared to 10.74 percent in the previous month as vegetables, pulses, milk, eggs, meat and fish became costlier.

Reacting on the monthly data, Deputy Chairman of Planning Commission Montek Singh Ahluwalia said inflation remained a big concern.

"It has eased a little bit, but the whole inflation scenario is still a matter of concern," Ahluwalia told reporters.

Ahluwalia expressed hope that the government will be able to curb inflation in the near future.

Food inflation re-entered the double-digit zone after a gap of six months in April 2012 and the trend continued in June. Prices of vegetables surged by a whopping 48.84 percent year-on-year. Potato prices zoomed by 75.85 percent.

Pulses became costlier by 20.48 percent. Milk became costlier by 7.30 percent. Prices of eggs, meat and fish rose 16.25 percent.

Prices of manufactured products increased by 5 percent year-on-year. The inflation of manufactured products stood at 5.02 percent, while price of fuel and power grew by 10.27. It was 11.53 percent in May. Petrol prices went up by 13.11 percent.

C. Rangarajan, chairman of the Prime Minister's economic advisory council, said food prices in the coming month would depend on the progress of monsoon rains, which would impact the overall inflation scenario.

Rangarajan said there would be some moderation of fuel inflation in the coming months on the back of easing in crude oil prices in the international markets.

"One can expect some moderation in fuel inflation, though it is difficult to predict," he said.

The recent data showed that India continued to face the problem of high inflationary pressure and a slow rate of growth.

As per the data released by the Central Statistics Office last week, India's industrial output grew by 2.4 percent in May led by rebound in manufacturing and electricity production. The growth was a marginal 0.1 percent in April due to poor show of mining and manufacturing sectors.

The cumulative growth in the factory output in April-May period, measured in terms of the Index of Industrial Production (IIP), stands at 0.8 percent year-on-year. The IIP had declined by 3.5 percent in industrial production in March, the first such contraction in factory output since October 2011, when it shrank by 4.7 percent.

Anis Chakravarty, a senior director at Deloitte in India, said inflation would remain "sticky" till the third quarter of the current financial year.

"It is also important to note that while these are provisional numbers, we are seeing upward revisions now on a more consistent basis when the final index is released," Chakravarty said.

"One hopes that the final numbers do not cross the 7.5 percent level after recent price hikes are factored in. Future inflation trajectory should depend on the impending diesel price hike and whether food inflation holds as the monsoon advance," he said.





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