The WPI based inflation eased to 6.62% in January 2013 from 7.18% in December 2012. The January 2013 inflation is the lowest since December 2009. More importantly, all three broad group inflation rates in January 2013 were lower than in December 2012. Continuous decline in headline inflation from October 2012 reflects weak demand conditions in the economy, says India Ratings.
The inflation number is in line with the Central Statistical Organisation’s (CSO) assessment of consumption slowdown. Consumption demand (measured by private final consumption expenditure) is expected to increase by 4.1% in FY13, down from 8.0% and 8.6% growth in FY12 and FY11, respectively. Inflation deceleration is in line with the assessment of slow demand growth. However, the worrying trend has been the increase in the inflation of food articles since October 2012. Inflation on food articles rose to 11.88% in January 2013 from 11.16% in December 2012. A large part of household budget is spent of food and higher food inflation reduces savings. Declining savings rate is threatening India’s macro-economic stability and increasing current account deficit.
Source: Financial Express