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Inflation Stays Sub-Zero

A marginal rise marked inflation, but it stayed in negative terrain

Pricey food has pushed inflation to (-)1.17 per cent for the week ended July 11. The previous week’s number was (-)1.21 per cent. This is the sixth consecutive week that the inflation figure has remained stuck under the sub-zero figure.

The reason behind the small rise has been due to the prices of food stuff increasing from cereals, fruits and vegetables to pulses. However, manufactures prices fell marginally by 0.05 per cent.

In the corresponding week of the previous year, the wholesale price index (WPI) was at 12.13 per cent.

While the figure is dramatic, yet it has not really convinced the central bank, the Reserve Bank of India, to cut policy rates and this time around too, this is unlikely to change its mind, citing the presence of ample liquidity in the system.

The RBI has cut the key rates six times since October 2008, the latest being on April 21.

Montek Singh Ahluwalia, Planning Commission Deputy Chairman, has cited the same reason for taking a stand against any more stimulus packages for the economy.

The bank is slated to review the credit policy on July 28.

The reason behind the preference for a status quoist approach by the central bank in particular and the government in general is because of expectations of a jump in inflation by the end of the year. The scale of the jump has most bankers worried as monsoon is still a big uncertainty. If it is scanty, then food prices will rise further and inflation will shoot up alongside.