Inflation on downward trend ?

Inflation could well be on its way down as the Government on Sunday said seasonally adjusted monthly inflation for August fell drastically to 5.5 percent, the lowest since December 2007.

Even though annual inflation rate, as conventionally measured, fell for the third week in a row, it was quite high at 12.10 percent for the week ended August 30.

However, if seasonal factors are done away with, annual rate of inflation for August fell significantly to 5.5 per cent against the high of 12.7 percent in July and 29.5 per cent in June, 2008, according to a statement issued by the Finance Ministry today.

"Annualised seasonally adjusted inflation in August 2008 has been the lowest since December 2007," the statement said. Seasonal factors play an important role in build-up of inflation. De-seasonalised index, therefore, is commonly used in assessing price build up, the statement added.

Sources in the finance ministry said this indicates a possible beginning of the fall in inflation.

This could be significant since many analysts expect inflation to rise again to 13.5 percent in November before easing to 9 percent in March.

Even if annual rate of inflation, as is conventionally measured, is taken into account, inflation for primary food items, which is a main concern for the common man, has declined for the week ended August 30.

According to the statement, inflation remained low for some of the important consumer items.

"The inflation for primary food articles at 4.6 percent on August 30, 2008 was lower compared to the inflation of 7.1 percent, a year earlier," the statement said.

In manufactured products also, inflation for cement (at 2.0 percent in the current year compared to 12.9 percent, a year earlier) and machinery items (at 5.5 percent in the current year compared to 8.7 percent, a year earlier) remained lower, according to the statement.

To a question as to why the finance ministry statement released on Thursday said inflation for 30-essential items increased to 7.52 percent during the week ended August 30 from 6.90 percent a week ago, the sources said the rise was mainly caused by sugar inflation, which had declined during the same period a year ago.

Sugar falls in the category of manufactured food item and not primary food item.