Inflation dives to nine-month low of 6.84%

Economists and analysts expect a further easing of key policy rates soon with the headline inflation rate for the week ended December 6 dropping to a nine-month low of 6.84 per cent, below the Reserve Bank of India’s target of 7 per cent for the 2008-09.

Data released by commerce and industry ministry today showed that the inflation rate for the week under consideration fell sharply from 8 per cent in the previous week, driven mainly by the cut in fuel prices. The rate, however, was higher than 3.84 per cent in the same week last year.

This is the sixth consecutive week that inflation has been in single digits. Headline inflation, however, remains higher than the central bank's 5 to 5.5 per cent "comfort level".

“The sharp decline in the inflation rate was primarily bought about by the reduction in prices of petrol and diesel during the week under consideration. Moreover, the restricted monetary policy also seems to be helping in this decline,” said Soumendra Dash, chief economist, CARE Ratings.

The inflation rate for the fuel group, which has a weight of 14.23 per cent in the index, declined to 0.57 per cent from 4.48 per cent in the previous week. The government had slashed prices of petrol by Rs 5 and diesel by Rs 2 on December 5, in the backdrop of falling crude oil prices, which have declined by more than 73 per cent from the record high of $ 147.27 a barrel on July 11.

The inflation rate for primary articles, which has a weight of 22 per cent in the index, increased 11.8 per cent in the reported week as against 11.66 per cent in the previous week. However, the inflation rate for food articles decreased marginally 10.18 per cent in the seven days up to December 6, 2008, as compared to 10.52 per cent in the previous week.

Inflation for manufactured goods, which constitutes about 64 per cent of the WPI basket, marginally declined to 7.31 per cent from 7.85 per cent in the previous week.

The inflation number for the week ended October, 11, 2008 has been revised upward by 27 basis points to 11.3 per cent. The provisional numbers are revised after a gap of two months.