India’s Inflation Rate Drops 6 Percent in Five Months

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Dec. 30 – India’s inflation has declined from a 16-year high of 12.91 percent in August this year to a nine-month low in December. The country's inflation rate in mid December fell as fuel price growth slowed to 6.86 percent. New Delhi cut retail prices of petrol by 10 percent and diesel by six percent on December 5 in response to a sharp fall in global crude oil costs.

Inflation was 3.8 percent this time last year. It is expected to dip to similar levels in 2009/10, from an average of 8.95 percent in 2008/09. Experts expect prices to fall further as commodity prices weaken and producers lose pricing power in a slowing economy.

"We expect March-end inflation to be around 1.75 -2.0 percent," Shubhada Rao, chief economist at Yes Bank in Mumbai told Reuters. "With growth slowing at a faster pace than earlier anticipated, we expect the RBI to ease monetary policy further in the January review." India has already announced that GDP growth is not expected to cross 7.5 percent as predicted for the financial year 2008/09.

Growth in India's US$1.2 trillion economy is weakening as recession gains a firmer grip on global economies. Exports in Asia's third largest economy fell by 12 percent in October to US$12.82 billion, the first year on year fall in nearly three years. Oil is India's largest import and its fall of more than US$100 a barrel to approximately US$40 a barrel will ease pressure on India's trade deficit which is still expected to reach US$110 billion for the first time this year.

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