The Hindu : 4-4.5 p.c. inflation expected

Online edition of India's National Newspaper
Thursday, Jan 29, 2004

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4-4.5 p.c. inflation expected

By Our Special Correspondent

MUMBAI, JAN. 28. Reversing the view it took in its last mid-term review of the monetary and credit policy, the Reserve Bank of India today noted that the magnitude of price rise in the last two months has been above the original expectations and "the downward bias on inflation rate may not be attainable.''

"Inflation trends in the last two months have not been unexpected but the magnitude of price rise has been above the original expectations,'' the RBI stated in its Report on Currency and Finance released here today.

In the normal course, it is expected that the inflation rate would fall during mid-January to March 2004.

"While the `downward bias' in the mid-term review may not be attainable, the range of 4 to 4.5 per cent for inflation by end-March 2004 continues to be relevant for monetary policy making, unless there are unanticipated shocks.''

The mid-term review of the Monetary and Credit Policy in November 2003 has placed the inflation projections for policy purposes in the range of 4 to 4.5 per cent "with a possible downward bias.'' Giving a brief history, the RBI stated, inflation measured as annual year-on-year (y-o-y) variations in the Wholesale Price Index (WPI) peaked at 6.9 per cent in the first week of May 2003.

This resulted from the upward revision in electricity prices and supply disruptions due to the transporters' strike in April, more than offsetting the effect of fortnightly downward revisions in POL prices beginning April 16, 2003.

Inflation ebbed thereafter up to August 23, 2003 driven by decline in prices of mineral oil, oilseeds, oilcakes, fruits and cement which more than offset inflationary pressures from iron and steel prices, vegetable prices and hike in administered coal prices.

"In the subsequent weeks, increases in prices of domestic mineral oil (following continued hardening of international crude prices), electricity, fruits, oil seeds and textiles pushed inflation up to 6.1 per cent by January 3, 2004.''

Average inflation, measured as annual percentage variation in the average wholesale index, was 5.3 per cent on January 3, 2004 as compared with 2.5 per cent a year ago.

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