Inflation nears zero; drops further to 0.27%

New Delhi, March 26: India appears to be set for a deflationary phase with Inflation hitting 30 year low at 0.27 percent even as prices of some essential commodities like cereals and vegetables rose during the period.

The figures released on Thursday were for the week ended March 14, down from 0.44 percent recorded for the earlier week.

However, despite the remarkable drop in inflation rate, there is still no significant drop in consumer price index (CPI), which relates to the prices of consumer goods including fruits and vegetables.

During the week, Primary article, which consist of food articles, rose marginally to 245.6 from 245.5 for the previous week, primarily due to higher prices of barley, bajra, maize, fruits & vegetables, masur, urad and rice. However, the prices of fish-marine and tea (3% each), moong (2%) and condiments & spices and gram (1% each) declined.

Manufactured Products, which has a weightage of 63.75%, rose by 0.2 percent.

Textiles indexes declined by 0.9 percent during the week due to lower prices of cotton yarn-cones.

Inflation, which catapulted to double-digits after the Government had increased prices of petroleum products in June last year, has been on a downward path for quite some time due to global fall in prices of crude and commodities as well as slackening demand.

Economists said inflation would fall in negative territory by the end of this month and will remain there for about four months.

“It (fall in inflation) is along expected lines mainly due to base effect and it may fall in negative territory by the end of March but would again (become positive) in August,” said Saumitra Chaudhuri, member of the PM Advisory Panel.

Industry chambers attributed the fall to slackening demand and asked for more credit flow to spur growth.

“We see that there is a lack of demand with high levels of inventory that has led to downward pressure on commodity prices … We need more credit flow (for) industry,” CII Director-General Chandrajeet Banerjee said.

Financial services firm Nomura expected rate cut by the RBI. “We expect another 100 basis point cuts in the repo and reverse repo rates by mid-2009 … due to rising real interest rates and as monetary policy is the only tool to offset weakening demand until the May elections,” Nomura Financial Advisory And Securities (India) said.