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Inflation falls to a record low of 0.26%

Last updated on: April 09, 2009 16:30 IST

Inflation declined to a three-decade low of 0.26 per cent in the fourth week of March as the economy faces slowdown, raising expectations of rate cuts by the Reserve Bank in its monetary policy later this month.

The wholesale price-based inflation declined by 0.05 percentage points for the week ended March 28 from 0.31 per cent in the previous week, even as food prices still remain high.

Although inflation is tending towards zero, the average rate of price rise works out to be 8.4 per cent for the entire 2008-09 against 4.7 per cent in 2007-08.

"I expect (a) 50 basis point cut in the repo (short-term lending) rate by the RBI during the month as inflation is expected to slip into negative territory in (a) couple of weeks," Crisil principal economist D K Joshi told PTI. ICRIER Senior Consultant Joseph Mathew said inflation was negative in 1975.

According to RIS Director-General Nagesh Kumar, "inflation is low due to crisis in demand and crisis of confidence. It is low (also) due to base effect and gives (the) RBI the scope (to lower) policy rates in its annual policy."

Besides moderation in the prices of some food, mineral and manufactured items, a high base effect due to the 7.75 per cent inflation in the corresponding period of last year also had a depressing effect on the rate of price rise recorded for the last week of March.

During the week, the minerals group declined by a whopping 11.8 per cent due to the prices of fire clay going down 19 per cent, iron ore 14 per cent, and chromite two per cent.

The prices of some food items like tea, sugar and linseed declined but the overall food index registered an increase of 0.3 per cent in the reported week. The fuel index, however, remained unchanged at its previous week's level of 320.9.

The Prime Minister's Economic Advisory Council chairman, Suresh Tendulkar, said, "It (inflation) is nothing but base effect and it may fall in negative territory in the coming weeks."

Inflation could slip into the negative zone in the next two to three weeks but it is not a matter of concern as the general price line is on the rise, Joshi said.

During the week, prices of food items like barley increased by 5 per cent, and ragi, bajra and fruit and vegetable were dearer by 2 per cent each.

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