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RBI pegs inflation at 3% for the medium term

April 21, 2009

Headline inflation, as measured by year-on-year variations in the wholesale price index (WPI), decelerated sharply from its intra-year peak of 12.91 per cent on August 2, 2008 to 0.26 per cent by March 28, 2009.

On account of slump in global demand, pressures on global commodity prices have abated markedly around the world.

The sharp decline in prices of crude oil, metals, foodgrains, cotton and cement has influenced inflation expectations in most parts of the world. This is also reflected in the domestic WPI inflation reaching close to zero.

Prices of manufactured products have decelerated sharply, while that of the fuel group have contracted, though inflation on account of food articles still remains high.

Keeping in view the global trend in commodity prices and domestic demand-supply balance, WPI inflation is projected at around 4.0 per cent by end-March 2010, while maintaining it at around 3.0 per cent is the medium-term objective.

The WPI inflation, however, is expected to be in the negative territory in the early part of 2009-10. However, this should not be interpreted as deflation, said RBI.

The consumer price inflation as reflected in various indices is expected to moderate from its present high level but would continue to remain in positive territory through 2009-10 unlike WPI inflation.

Table 4: Annual Inflation Rate (%)
Wholesale Price Index (WPI)	29-Mar-08	28-Mar-09
	(y-o-y)	(y-o-y)
WPI - All Commodities	7.75	0.26
WPI - Primary Articles	9.68	3.46
WPI - Food Articles	6.54	6.31
WPI - Fuel Group	6.78	-6.11
WPI - Manufactured Products	7.34	1.42
WPI - Manufactured Food Products	9.4	7.51
WPI - Excluding Fuel	8.01	2.01
WPI - Excluding Food Articles and Fuel	8.38	0.95
Consumer Price Index (CPI)	Feb-08	Feb-09
	(y-o-y)	(y-o-y)
CPI - Industrial Workers	5.47	9.63
CPI - Agricultural Labourers	6.38	10.79
CPI - Rural Labourers	6.11	10.79
CPI - Urban Non-manual Employees #	4.84	10.38
.# Pertains to January.

Image: A vendor arranges vegetables at a market in Siliguri. | Photograph: Rupak De Chowdhuri/Reuters

Also read: India: A growing link in the global supply chain

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