In an unexpected happening, WPI inflation fell to single digit numbers for the first time in 5 months, falling by 174 bps from the previous week to 8.98% for the week ended November 1, 2008. The point-to-point inflation rate also fell the most in at least 18 years. The reading was way below average estimate of economists, which ranged between 10.2-10.5%. This comes as welcome signal for the economy, reeling from low growth numbers, tight liquidity and worries of global economic recession. The fall in inflation has also given the Reserve Bank of India, more headroom to cut rates, bringing out another positive aspect of the fall in inflation, fall in rates could be a big boost for the domestic economy reeling from slowing growth.
What aided the sharpest-ever fall in WPI inflation in over five months was the slump in the prices of various petroleum-based fuels such as naphtha, aviation turbine fuel (ATF), furnace oil and light diesel oil as global crude prices plummeted from $145 a barrel in July to $56-60 a barrel. The energy index that comprises of around 15% of the total 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.
Apart from others who had voiced similar views in the recent past, it was only earlier this week that the Prime Minister’s Economic Advisory Council (PMEAC) Chairman, Suresh Tendulkar, said: “Inflation seems to be on the decline as international commodity prices are coming down and the domestic harvest is good. Early next year, inflation would be in single digit.”
What aided the sharpest-ever fall in WPI inflation in over five months was the slump in the prices of various petroleum-based fuels such as naphtha, aviation turbine fuel (ATF), furnace oil and light diesel oil as global crude prices plummeted from $145 a barrel in July to $56-60 a barrel. The energy index that comprises of around 15% of the total 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.
Apart from others who had voiced similar views in the recent past, it was only earlier this week that the Prime Minister’s Economic Advisory Council (PMEAC) Chairman, Suresh Tendulkar, said: “Inflation seems to be on the decline as international commodity prices are coming down and the domestic harvest is good. Early next year, inflation would be in single digit.”
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