Inflation surprises

In another positive surprise, India's widely watched inflation tumbled at the beginning of the month on account of a steep reduction in fuel prices, the Government said. This is the first time that inflation has fallen to single digits in five months, sparking speculation of further easing in monetary policy, to arrest the slide in economic growth. Inflation, based on the wholesale price index (WPI), fell to a near six-month low of 8.98% for the week ended November 1, a drop of almost 4% from the 16-year high of 12.91% struck on August 2. The point-to-point inflation rate fell the most in at least 18 years. It had gained at a 10.72% pace in the previous week, the Commerce Ministry said in a statement yesterday. The reading was way below average estimate of economists, which ranged between 10.2-10.5%.

The WPI fell in the week to Nov. 1 because of a decline in the prices of fuel products such as jet fuel, naphtha and furnace oil. The energy index dropped 9.22%, compared with 14.09% in the previous week, after Indian oil marketing companies cut the price of jet fuel by 17%. The index of manufactured products that includes cooking oil and steel products, with a 63.7% weighting in the inflation basket, dropped to 8.06% compared with 9.09% a week ago, the Commerce Ministry said. Inflation rate may be revised in two months, after the Government receives additional price data. The Commerce Ministry increased the inflation rate for the week ended Sept. 6 to 12.42% from 12.14%. Inflation is likely to fall further, given the bleak scenario, where commodity prices are falling, demand is shrinking and producers losing pricing power.