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Growth dips, but not inflation – Crisil

Crisil Research has blamed high food prices and lower rupee value for consistent high inflation.

It noted that even though growth seems to have moderated, inflation, which should also have come down, has not.

“This reflects the higher-than-anticipated increase in food inflation, and the impact of the weak currency on imported component of inflation. Although overall inflationary pressures continue to remain high, the Reserve Bank of India could announce a rate cut in its mid-quarter monetary policy review on June 18, aimed at lowering cost of credit and reviving business sentiments in the scenario of weakening growth,” it noted.

WPI-based inflation rose to 7.5 per cent in May compared to 7.2 per cent in the previous month. Food inflation which remained in the double-digit zone for the third consecutive month could rise further if a steep increase in minimum support prices of foodgrains is announced. CRISIL Research has revised its average inflation forecast for 2012-13 up to 7.0 per cent, from our previous expectation of 6.5 per cent.

Manufacturing inflation remained relatively unchanged from the previous month at about 5.0 per cent. Manufacturing inflation has seen a pronounced decline since December 2011, mainly led by lower inflation in textile products, chemical products, processed food, metals and non-metallic minerals and machinery equipment.

CRISIL Core Inflation Indicator (CCII) remained lower than non-food manufacturing inflation, but unchanged from the previous month at 4.3 per cent. RBI’s existing measure of core inflation – non-food manufacturing inflation declined marginally to 4.8 per cent from 4.9 per cent in the previous month, in part reflecting the relative stubbornness in base metals inflation.

Primary food inflation continued to remain high at 10.7 per cent in May compared to 10.5 per cent in the previous month. Fuel inflation rose to 11.5 per cent led by higher inflation in internationally linked fuels due to a weaker rupee.

WPI inflation for the month of March was sharply revised upwards to 7.7 per cent from the earlier estimate of 7.0 per cent. This raises the possibility that inflation for April at 7.2 per cent currently would also be revised up next month.

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