India's wholesale price inflation slowed more than expected in July as inflationary pressures subsided with weak economic activity.
Wholesale prices increased 6.87 percent annually, the lowest in more than two years, the Ministry of Commerce and Industry said Tuesday. The annual rate was forecast to ease marginally to 7.2 percent from 7.25 percent in June.
Nonetheless, the slowdown in inflation is seen as temporary given the fact that deficient monsoon is set to push food prices higher in months ahead. As such, the latest bigger-than-expected fall in inflation is unlikely to prompt the central bank to reduce interest rates.
Food inflation came in at 10.06 percent in July, down from 10.81 percent in the previous month. Likewise, primary article price inflation slowed to 10.39 percent from 10.46 percent a month ago.
Fuel and power costs gained only 5.98 percent compared to last month's annual growth of 10.27 percent.
Meanwhile, non-food article inflation almost doubled to 13.05 percent from 6.85 percent in June. Manufactured product inflation rose slightly to 5.58 percent from 5 percent.
In July, the central bank lifted the projection for WPI inflation for March 2013 to 7 percent from 6.5 percent. The Reserve Bank sees 6.5 percent growth for 2012-13.
The central bank maintained its key interest rate at 8 percent last month as lowering policy rates in the current situation will aggravate inflationary impulses without necessarily stimulating growth.
RBI Governor Duvvuri Subbarao on Monday said India has little scope for any kind of fiscal or monetary response to counter future economic crises triggered by global factors.
Elsewhere, in a CNBC interview, Deputy Governor Subir Gokarn said tackling high inflation remains the top priority of the central bank. Interest rate cuts can bring rebound in economic activity, but the central bank is dealing with a relatively uncomfortable inflationary situation.
During the quarter ended March 2012, India's GDP logged its weakest pace of expansion in nine years. Weak domestic economy and lower external demand pulled industrial production down in June.
Recently, many forecasters lowered India's growth outlook and raised inflation estimate. CRISIL projects the economy to grow 5.5 percent for 2012-13, and inflation is seen at 8 percent.
by RTT Staff Writer
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