Inflation eases to 4.05% for the week ended 4th August, 2007

India's inflation slowed faster than expected in the first week of August as the prices of fruits, vegetables and other foods eased. The annual rate of inflation stood at 4.05 percent for the week ended Aug. 4, the lowest since the week ended June 16, compared with 4.45 percent the previous week. Analysts had estimated inflation at 4.3 percent. On year-to-year basis, wholesale prices-based inflation dropped by over one percent as it had stood at 5.08 percent during the corresponding period of the previous fiscal.

Food prices declined as flood waters receded in the north, east and northeast. These areas were swamped in annual monsoon flooding that caused an unexpected spiral in food prices in the last week of July. The Reserve Bank of India may keep borrowing costs unchanged as inflation was below its 5 percent target for the ninth week.

The index of food articles declined 0.7 percent, led by a 6.5 percent fall in the index of vegetables and a 4.8 percent drop for the benchmark for fruits and vegetables, according to the report. Poultry and meat prices fell 0.5 percent in the week.

The revised estimates by CSO say that the inflation rate for the week ended June 9 was unchanged at 4.28 percent. The government revises the inflation rate after a delay of two months on additional price data.

Inflation was hovering between 4.0 percent and 4.50 percent for the past two months, with the lowest figure at 4.03 percent during the week ended June 16. The wholesale price index, on which inflation is based, declined by 0.1 percent to 213.1 points during the week under review from 213.4 percent in the previous week, the data showed. The Reserve Bank of India (RBI), has already increased the cash reserve ratio (CRR) for the commercial banks from 6.50 per cent to 7.0 percent aiming to curb inflationary pressures on economy through withdrawing excess liquidity from the banking system.