The government’s decision to cut petrol and diesel prices earlier this month has helped push the inflation rate below 7 per cent and offered extra room for the Reserve Bank of India to slash interest rates further.
But there isn’t much to cheer as the economic slowdown keeps getting worse with increasing job losses and pay cuts.
The news of lower inflation coincided with a survey report from human resource consulting firm Mercer that said most companies in India are now likely to cut back on previously planned salary increases in 2009.
According to official data released on Thursday, the wholesale price-based inflation rate fell sharply to a nine-month low of 6.84 per cent in the week ended December 4 from 8.4 per cent in the previous week.
But as the table shows, prices of many items of daily consumption have not fallen – in some case they are up – from April, when inflation was hovering at the same level as now.
The latest drop was mostly aided by the sharp fall in global crude prices, which have plunged from a record high of $147 per barrel to about $40 now and back home, resulted in reduction prices of both administered fuel products — petrol and diesel — and non- administered ones like jet fuel, furnace oil and naphtha. The fuel basket in the wholesale price index fell 3.7 per cent compared to the same week a year ago.
Still, the softening of inflation rate is encouraging news for policy makers trying to revive the economy with fiscal and monetary stimuli.
‘We expect the Reserve Bank of India to cut rates aggressively,” said Sonal Varma of Nomura Financial Advisory & Securities.