Indian inflation falls to near five-year low

Sep 21, 2007 - India's annual inflation rate has fallen to a near five-year low, official data on Friday showed, but soaring global crude prices threaten to push the cost-of-living higher, economists said.

Inflation slowed to 3.32 per cent for the week ended Sept 8 from 3.52 for the previous week, according to the wholesale price index, India's closest watched cost-of-living monitor. It was the lowest level since December 2002.

But economists said they expected no early easing of interest rates which are riding at five-year highs amid worries that record oil prices could trigger a rise in state-set domestic fuel prices.

'You'd think rates would fall but I don't see the Reserve Bank doing that now with crude prices heading north and food prices hardening,' said HDFC chief economist Abheek Barua.

The drop in inflation was driven by lower prices of vegetables, energy and some minerals. An acceleration in prices a year ago also helped make the fall look sharper.

Inflation stood at 5.22 per cent in the same week a year earlier.

Economists believe there could be a rise soon in government-set retail prices to staunch heavy losses at state-owned oil firms, a move that would boost inflation, although opposition from the ruling Congress party's communist allies could delay such a step.