Inflation at 2-year high of 6.73%

Manufactured products and primary agricultural goods like vegetables, eggs, meat and fish, oilseeds, condiments and spices pushed up the wholesale price index to a new two-year high of 6.73 per cent for the week ended February 3 against 6.58 per cent in the previous week. This exceeds the industry expectation of 6.50 per cent.

The latest data renews expectations of the Reserve Bank of India taking more measures to contain inflation within the 2006-07 target of 5-5.5 per cent.

The RBI had recently increased the cash reserve ratio - the proportion of money banks must keep with the government - by 50 basis points to 6 per cent in two stages. The first hike of 25 basis points will be effective from February 17 and the second from March 3.

This week's numbers reinforce the view that the government's recent supply-side interventions - such as banning wheat and milk powder exports and cutting import duty on cement, steel and edible oils - will take time to show results.

"We will have to wait and see if these measures and the latest cuts in diesel and petrol prices will have an impact," said Aditya Birla Group Chief Economist Ajit Ranade. He added the CRR hike of February 13 would have a sobering impact on inflation in the medium term.

However, Arun Kaul, manager (treasury and finance) of Punjab National Bank, attributes the high inflation to the "low base-year effect." The annual rate of inflation stood at 3.98 per cent on February 4, 2006.

"The steps taken by the Centre and RBI may show results in the first quarter of 2007-08," he added.

The WPI for all commodities stood at 209.2 points for the week under review. Vegetables (1.6 per cent) and eggs, meat and fish (1.7 per cent) saw the highest percentage change in the primary article index, which has a weightage of 22.02 per cent in the WPI.

There was a decline for fuel, power, light and lubricants by 0.4 per cent to 320.8 on account of lower prices of aviation turbine fuel (11 per cent), along with naphtha, furnace oil and electricity (1 per cent each).

The index for manufactured products, with a weightage of 63.75 per cent in the WPI, rose by 0.3 per cent to 181.9.

The highest percentage change over the previous week was registered by wood and wood products (6.7 per cent), leather and leather products (3.9 per cent), dry and wet batteries (4.7 per cent). In textiles, prices of jute hemp and mesta textiles rose 3.3 per cent.