Mumbai: Declining for the fourth straight month, WPI inflation fell to 6.62 percent in January despite rise in prices of food items like vegetables, onions and rice.The Wholesale Price Index (WPI) had stood at 7.18 percent in December and 7.24 percent in November. It was at 7.23 percent in January, 2012.
     
Further, inflation in manufactured items category too witnessed a decline and stood at 4.81 percent in January, as per official data released on Thursday. Inflation in food articles, which have a 14.3 percent share in the WPI basket, however witnessed an increase as onion prices shot up during the month.
     
Inflation in the food articles category was at 11.88 percent from 11.16 percent in December. Onions became expensive by 111.52 percent during January, from 69.24 percent in December, 2012.
     
While rice became costlier by 17.31 percent in January, from 17.10 percent in December, vegetables became dearer by 28.45 percent from 23.25 percent in last month. Inflation in wheat and cereals stood at 21.39 percent and 18.09 percent respectively in January.
     
Potatoes were expensive by 79.07 percent, while inflation in pulses was up 16.89 percent. While, inflation in egg, meat and fish stood at 10.81 percent, those of milk rose up 4.47 percent and fruits by 8.42 percent. For the fuel and power category, it moderated to 7.06 percent in January, compared to 9.38 percent in December, 2012.      

The cooling off of January inflation would provide the much needed comfort to Reserve Bank, which had projected March-end inflation at 6.8 percent. The central bank had last month lowered interest rates by 0.25 percent saying that with inflation showing signs of remaining range bound, it was now critical to arrest the loss of growth momentum.
 
    
COMMENTARY
 
LEIF ESKESEN, CHIEF ECONOMIST FOR INDIA AND ASEAN, HSBC, SINGAPORE
    
"It is clearly much lower than anticipated. Things are moving in the right direction, it is positive and encouraging for the Reserve Bank of India.

"However, other factors will have to fall into place before the RBI eases again, and that includes continuation of structural reforms and what the budget brings.
    
"The RBI will also keep a close watch on the consumer price inflation and the fiscal deficit."

ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK, NEW DELHI
    
"We seem to be looking at continued deceleration in manufacturing product inflation. I am not sure where the relief on fuel has come from, one has to look at the fine print.
    
"However, with both the headline inflation and manufacturing coming down, we are looking at a sharp and sustained downward trend, which should give the RBI the elbow room to go ahead at least with a couple of more rate cuts in the first half itself perhaps in March and April.
    
"I am surprised at the fuel index, I thought it would be much higher."
    
ANJALI VERMA, ECONOMIST, PHILIPSCAPITAL, MUMBAI

"It should bode well for RBI. Our expectation is that inflation will ease more to 5.5-5.8 percent by fiscal year end. However, the RBI is also now worried about other variables like current account and fiscal deficits in policy making.
    
"My call is a rate cut will be likely in March or April by another 25 basis points."

UPASNA BHARDWAJ, ECONOMIST, ING VYSYA BANK, MUMBAI
    
"The inflation number for January is a pleasant figure. The moderating core inflation despite hike in the diesel prices for bulk consumers in the middle of the month would create room for RBI to cautiously cut the repo rate by 25 bps in the March policy."

SHAKTI SATAPATHY, FIXED INCOME ANALYST, AK CAPITAL, MUMBAI
    
"The print is more in line with our expectation and a result of lower readings in crude and manufacturing indices. Today's number might give a short-term respite for the forthcoming repo cut in the March RBI policy.
    
"However, the central bank would adopt a cautious approach resulting from consistent worries over imported inflation and higher current account deficit. We expect the  bonds to trade rangebound with a downward bias in yields until March primarily in anticipation of a rate cut and timely OMOs (open market operations)."

A PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY SECURITIES DEALERSHIP, MUMBAI
    
"This shows that finally inflation is easing and fits with the growth slowdown. I think March inflation will be lower than RBI's projection and that should give RBI the comfort to cut rates by 25 basis points in March. Also, the revision trends are softening and so there could be a marginal upward revision if at all, to the January number. This number will strengthen the rate cut expectations going ahead."
   
BACKGROUND

- Annual consumer price inflation accelerated to 10.79 percent in January from the previous month, government data showed on Tuesday, making retail inflation in India the highest among the BRICS group of emerging economies - Brazil, Russia, China, and South Africa.

- Trade deficit rose to USD 20 billion in January from USD 17.7 billion in the previous month as imports surged while exports rose only slightly, adding pressure to a widening current account deficit and limiting the scope for further interest rate cuts by the central bank.

- Current account deficit is likely to reach a record high in 2012/13, the central bank governor warned, a gap which the bank said previously needed to shrink for it to lower borrowing costs.

- Industrial production unexpectedly shrank for a second straight month in December, weighed down by weak investment and consumer demand, casting doubt on Finance Minister P. Chidambaram's view that Asia's-third largest economy is showing signs of recovery.
    
- Investment malaise is thwarting quick economic rebound and India is on course to end the 2012/13 fiscal year in March with its slowest growth in a decade at 5.0 percent.
    
- The central bank lowered its key policy rate for the first time in nine months in January, but struck a cautious note on further easing as it waits to see how the government's upcoming budget aims to bring a bloated fiscal deficit under control.

(Agencies)

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