Mumbai: Inflation based on Wholesale Price
Index, measured on the basis of a basket of select commodities
and their price variation, is likely to turn positive after
October this year, the Reserve Bank said in its Annual Report.
Since June, year-on-year WPI inflation has remained
negative, primarily reflecting the high base effect of the
previous year that resulted from significant increases in
the prices of food and international commodities in the
first-half of 2008-09.
"The base effect could be expected to fade gradually and
then disappear by October 2009, after which the positive WPI
inflation will become visible," the Reserve Bank said.
While WPI inflation has turned negative, other indicators
of inflation based on consumer price index for June
(point-to-point) continue to remain high.
"The significant divergent behaviour of the inflation is
largely on account of the differences in the coverage of items
and their weights in the WPI and CPI," the apex bank said.
At the disaggregated level, even within the WPI,
inflation in food articles and essential commodities remain
close to the inflation as per different indices of CPI.
The divergent inflation pattern as per the WPI and CPI
indices has increased the complexity in the assessment of
inflation, and for policy purposes, the bank is monitoring the
full array of price indicators, the RBI said.
However, the bank noted that inflation expectations have
not declined as much as the fall in WPI inflation and
expansionary fiscal stance. And an accommodative monetary
policy may not lead to sobering of inflation expectations,
even if the headline inflation remains negative for a few
months.
"Trends in global commodity prices in the first-quarter
of 2009-10 suggest that upside risks to inflation could
persist from rebound in global commodious prices ahead of
global recovery," the RBI said.
Increase in MSP, that may be seen as a measure to support
the farmers in a below normal monsoon year could stoke
inflation. "More importantly, the deficient monsoon could
affect the inflation outlook more than the growth prospects,"
it said.
In its first quarter review of its monetary policy, the
RBI had revised the inflation projection for the end of the
year to 5 per cent from the earlier 4 per cent while
highlighting the medium-term objective of 3 per cent
inflation.
Bureau Report
First Published: Thursday, August 27, 2009, 21:08