With moderation in non food manufacturing sector and global commodity prices, the headline WPI inflation may decline between 6.2 to 6.6. per cent in March 2013. Inflation has remained muted in the current financial year and declined to a three year low of 6.62 per cent in January 2013 . Unlike last year when the food price inflation was mainly driven by higher protein food items, this year the pressure has been mounting in cereals. On the other hand milk and other protein items have shown a decline. The recent increase in onion prices in January 2012 and revision in diesel prices may put some pressure on headline inflation. However, inflation is expected to continue the moderating trend.

Inflation has eased in almost all major advanced and emerging market economies in the current year. The positive effect of continuous policy easing by the major advanced and developing countries could pose a higher risk to inflation expectations. However, in the short run, given weak growth sentiments, the impact of policy easing may not lead to a surge in inflation and inflation expectations may remain anchored around current target inflation rates.

As per the World Bank’s global economic prospects, January 2013, except for metals, most global commodity prices are expected to decline further in 2013 and 2014. The impact of benign inflationary expectations internationally will have a moderating impact on domestic prices. The RBI’s monetary policy stance has continued to focus on the twin objectives of containing inflation and facilitating growth. Increasing risks to growth from external as well as domestic sources and tight monetary policy in face of persistent inflationary pressures have contributed to a sharper slowdown of the Economy than anticipated. There has been some moderation in inflation in Q3 of 2012-13 and with the expected fiscal consolidation the current macroeconomic situation creates room for a more accommodative monetary policy.

DSM/UM/RC/RV

(Release ID :92599)

WPI inflation may decline, reflecting softer commodity prices and manufacturing moderation, easing headline inflationary pressures. Projection that WPI inflation may decline to 6.2-6.6% in March 2013 due to moderation in non-food manufacturing and softer global commodity prices, with cereals placing upward pressure on food inflation while milk and protein items moderate; transient domestic shocks like onion and diesel price changes may add pressure. Benign global commodity forecasts and anticipated fiscal consolidation are expected to moderate domestic inflation and allow scope for a more accommodative monetary stance amid ongoing growth risks.