WPI inflation dips to 7.18 per cent; raises rate cut hopes

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WPI inflation dips to 7.18 per cent; raises rate cut hopes
The Wholesale Price Index inflation for the month of December 2012 has surprisingly dipped to 7.18 per cent, as against 7.24 per cent for the month of November 2012. Analysts had broadly been expecting the December WPI figure to touch 7.40 per cent.

"Build up inflation in the financial year so far was 4.72% compared to a build up of 5.22% in the corresponding period of the previous year," a government release has stated.

The index for primary articles declined by 0.4 percent to 220.0 (Provisional) from 220.8 (Provisional) for the previous month. The groups and items which showed variations during the month are as follows:-

The index for ‘Food Articles' group declined by 0.5 percent to 212.2 (Provisional) from 213.2 (Provisional) for the previous month due to lower price of coffee (5%), fruits & vegetables and arhar (4% each), gram and fish-marine ( 3% each), masur (2%) and urad (1%).  However, the price of bajra (8%), barley (5%), maize, rice, tea, ragi and poultry chicken (3% each), jowar and fish-inland (2% each) and wheat, moong, mutton and condiments & spices (1 % each) moved up.

The index for fuel and power rose by 0.1 percent due to higher price of bitumen. The index for manufactured products remained unchanged at its previous month's level of 148.0 (Provisional).

The drop in inflation now raises the prospects of a rate cut by the RBI when it meets to review its policy on January 29, 2013. Analysts are broadly expecting the RBI to cut rates by at least 25 basis points, though a cut of as much as 50 basis points cannot be ruled out.

The CPI inflation has come in at 10.56 per cent, which is likely to make the RBI a little uncomfortable when it comes to aggressive easing.

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