Sunday, February 17, 2013

Data source: The Economic Times

Over the last few years, inflation has been one of the biggest spokes in the wheel of India's growth story. As such, the recent inflation figures may provide some respite. As per data released, the wholesale price index-based inflation declined to 6.62% in January 2013. It must be noted that this is the lowest in the last 38 months. This may probably provide a cue to the Reserve Bank of India (RBI) to cut interest rates lower.

However, the dip in inflation rings an alarm on the growth front. The fall in inflation has been attributed to the decline in fuel prices and in the prices of manufactured products. A dip in product prices usually indicates dropping demand in the economy. This, in turn, would impact job creation and economic growth. The other worrying matter is that consumer price inflation still remains high, driven by food inflation. It stood at 10.8% in January 2013 against 10.56% in December 2012. This dichotomy of falling prices of industrial goods and rising prices of essential goods has put policymakers in a fix.             

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