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Inflation at year's low; hopes of rate cuts by RBI

Lower prices of fuel, food and liquour pulled down inflation to over a 12-month low of 4.39 per cent, raising expectations of further cuts in policy rates by the Reserve Bank.

business Updated: Feb 12, 2009 15:01 IST

Lower prices of fuel, food and liquour pulled down inflation to over a 12-month low of 4.39 per cent, raising expectations of further cuts in policy rates by the Reserve Bank.

Wholesale price-based inflation declined by 0.68 percentage points during the week ended January 31 from 5.07 per cent a week ago, mainly on account lower prices of petrol, diesel and cooking gas.

On January 28, the government reduced the prices of petrol by Rs 5 a litre and diesel by Rs 2 per litre, while the domestic LPG rate was also slashed by Rs 25 per cylinder.

The previous comparable low was recorded at 4.36 per cent for the week ended January 12, 2008.

The inflation number is slightly higher than expected. However, this gives the RBI more elbow room for rate cuts. There could be reduction in the repo and reverse repo rates by 50 basis points each in the coming days, said HDFC Bank Economist Jyotinder Kaur.

During the week the fuel group index declined by 3.1 per cent mainly due to the cooling of petrol prices by 11 per cent, LPG by 8 per cent and diesel by 7 per cent.

The other consumable items that became cheaper were liquor, by 15 per cent; fruit and vegetable, by 3 per cent; and tea, by 1 per cent.