India is in the midst of a rapid growth regime, thanks to growing consumerism, increasing global competitiveness and massive investment in infrastructure and capacity building. The long-term growth potential of the country is tremendous, and as the global markets has realized this, there are huge and rising forex inflows through FDI, and Indian debt, quasi equity and equity instruments attract huge interests. Also, strong corporate earnings, better visibility for the long term and general rally in the global markets together have facilitated BSE to surpass 15000 mark in July 2007.
One of the characteristic features of the economic performance in the first six-month of the Calendar year 2007 has been easing of headline inflation, which slipped from 6.69% for week ending 27 January 2007 to around 4.40% in July. Higher base effect, impact of monetary and fiscal policies and also sharp appreciation of rupee together facilitated taming down of inflation.
The headline inflation, which is measured by change in Wholesale Price Index (WPI), stood at 4.05% during the week ended 4 August 2007 lower than the previous week at 4.45%. The recent WPI figures though are well in RBI’s tolerance limit, the whole sale price index of all commodities which are given in the lack of eight weeks are being continuously revised upwards, considering the calendar year 2007 creating a high base for corresponding next year figures (though the final index for the week ending 9 June 2007 remains unchanged).
The impact of this high base will be witnessed in the WPI growth figures next year, which may show deceleration as a result. The continuous rise in final all commodity inflation figures has been the result of rising inflation of primary articles as well as manufactured products group index, which grew on an average by 0.07% and 0.27% in January-May 2007 period respectively. Among the manufactured products group edible oil group index grew on an average 0.48% and iron and steel group index grew 0.54% during January-May 2007 (final inflation figures).
Also though the overall inflation rate was barely above the 4% mark in early August, official statistics reveal that the price index for the food articles group had risen by 8.36% over a twelve-month period. Within this group, cereal prices have hardened by 8.72% and fruits and vegetables by 10.42%.The spurt in pulses is a modest 3.33% because large-scale imports have beefed up their availability.
The rise in edible oil prices has been the sharpest at 13.46%, implying that, despite liberal imports, the supply-demand equation is skewed.
Though, sugar and gur have charted a downward course, with their prices plunging by nearly 18% and 13%, respectively, the soaring food prices are a reality but this is not reflected fully in the wholesale price index- measured index. This is because of low weights accorded to food items in this index.
The food articles group has a weightage of about 15%; if to this, the 11.5% weight assigned to a subgroup —- food products in manufactures—-is reckoned with; just 26% of the weight is allotted to the food group in this index. That’s too low to impact on the final inflation figure. Though overlooked, the food inflation contained in the wholesale index is substantial and should engender concern.
Outlook
While there is an abatement of inflation in the recent period, upward pressures persist emanating from high and volatile international crude prices, the continuing firmness in key food prices and the uncertainties surrounding the evolution of demand-supply gaps, both globally as well as in India. In this regard, it is essential to carefully monitor developments relating to continuously assess the risks to the inflation outlook. It is also necessary to assess aggregate supply conditions and the supply response to the impulses of demand in the short-term, while stepping up efforts to expand production capabilities over the medium-term.
One of the characteristic features of the economic performance in the first six-month of the Calendar year 2007 has been easing of headline inflation, which slipped from 6.69% for week ending 27 January 2007 to around 4.40% in July. Higher base effect, impact of monetary and fiscal policies and also sharp appreciation of rupee together facilitated taming down of inflation.
The headline inflation, which is measured by change in Wholesale Price Index (WPI), stood at 4.05% during the week ended 4 August 2007 lower than the previous week at 4.45%. The recent WPI figures though are well in RBI’s tolerance limit, the whole sale price index of all commodities which are given in the lack of eight weeks are being continuously revised upwards, considering the calendar year 2007 creating a high base for corresponding next year figures (though the final index for the week ending 9 June 2007 remains unchanged).
The impact of this high base will be witnessed in the WPI growth figures next year, which may show deceleration as a result. The continuous rise in final all commodity inflation figures has been the result of rising inflation of primary articles as well as manufactured products group index, which grew on an average by 0.07% and 0.27% in January-May 2007 period respectively. Among the manufactured products group edible oil group index grew on an average 0.48% and iron and steel group index grew 0.54% during January-May 2007 (final inflation figures).
Also though the overall inflation rate was barely above the 4% mark in early August, official statistics reveal that the price index for the food articles group had risen by 8.36% over a twelve-month period. Within this group, cereal prices have hardened by 8.72% and fruits and vegetables by 10.42%.The spurt in pulses is a modest 3.33% because large-scale imports have beefed up their availability.
The rise in edible oil prices has been the sharpest at 13.46%, implying that, despite liberal imports, the supply-demand equation is skewed.
Though, sugar and gur have charted a downward course, with their prices plunging by nearly 18% and 13%, respectively, the soaring food prices are a reality but this is not reflected fully in the wholesale price index- measured index. This is because of low weights accorded to food items in this index.
The food articles group has a weightage of about 15%; if to this, the 11.5% weight assigned to a subgroup —- food products in manufactures—-is reckoned with; just 26% of the weight is allotted to the food group in this index. That’s too low to impact on the final inflation figure. Though overlooked, the food inflation contained in the wholesale index is substantial and should engender concern.
Outlook
While there is an abatement of inflation in the recent period, upward pressures persist emanating from high and volatile international crude prices, the continuing firmness in key food prices and the uncertainties surrounding the evolution of demand-supply gaps, both globally as well as in India. In this regard, it is essential to carefully monitor developments relating to continuously assess the risks to the inflation outlook. It is also necessary to assess aggregate supply conditions and the supply response to the impulses of demand in the short-term, while stepping up efforts to expand production capabilities over the medium-term.
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