Inflation nears zero even as essential food prices remain high

New Delhi, Mar 26 (PTI) Inflation moved towards zero bydeclining to 0.27 per cent for the second week of March, evenas essential food prices continued to remain high due to highMSP and inadequate production of pulses and coarse cereals. The 0.17 percentage point decline in wholesale pricesinflation from 0.44 per cent during the week ended March 7 wasalso attributed partly to a high base effect as the rate ofprice rise was 8.02 per cent in the same period a year ago. "This is not because of lack of effective demand. Itis basically due to the base effect and that is not somethingwhich we are unaware of, not something which we are notfactoring (in)," Economic Affairs Secretary Ashok Chawla said. The persistent decline in inflation has fuelled hopesthat the RBI would further ease money supply to boost economicgrowth, which is slackening. "As for RBI cutting rates, in a month we can see some50 basis point cut in key rates. Right now there has beenenough liquidity and RBI has been proactive in takingmeasures," Crisil Principal Economist D K Joshi said. Food prices in the primary articles group (which are notprocessed) rose 0.1 per cent on a weekly basis and a whopping7.10 per cent on a yearly basis. In the manufactured category(processed variety), food prices increased 1.2 per cent ona weekly basis and 6.63 per cent year-on-year. Joshi said the rise in food prices was because of badfarm performance in pulses and coarse cereals, even as wheatand rice production has been good. "Food prices are high as prices of pulses, coarsecereals have been rising. Agriculture performance has not beengood in coarse cereals and pulses," he said. He said the rise was also due to high minimum supportprices for farmers and expected the rate of food price rise tofall by June-July. Earlier this week, Prime Minister Manmohan Singh hadsaid food prices have not fallen as the Government sought toincrease incomes in rural areas. "Farmers have never been given (in the past) suchincreases in terms of procurement prices," he had said. The index for the major categories -- manufactured goodsand primary articles -- rose, while that of fuels remainedunchanged. Inflation is so close to zero that economists expectthe possibility of it slipping into negative territoryshortly. RIS Director-General Nagesh Kumar said, "Inflation mightslip into negative territory in the coming weeks and it shouldprovide space for RBI to further lower policy rates." Joshi said inflation will go into the negative zonewithin two weeks. "Maybe -2 or -3," he said. However, economists refuse to term it deflation.(MORE) PTI