The government Tuesday claimed a 1.37 percentage point dip in the politically sensitive inflation, as a new series measured it at 8.5 percent in August, but the Finance Minister said there was no room for complacency.Although the drop is substantial, when measured using the old series, inflation during the month under review works out to 9.5 percent, down from 10 per cent in July.
"Even though the good news of lower inflation is reported today, yet there is no room for complacency... (government) will continue to bring it down further," Finance Minister Pranab Mukherjee said in a statement.
Prime Minister Manmohan Singh had earlier this year said he expects inflation to drop to 6 percent by December.
Mukherjee indicated Tuesday that the RBI could take some action in its mid-quarter review of monetary policy on September 16.
"Some international commodity prices have shown some recent inflationary tendency, especially the wheat prices worldwide... (which) have risen sharply following production shortfall in Russia and Ukraine," he said.
The fall in August inflation, however, came on the back of lower prices of food items like vegetables, cereals and pulses and sugar.
Mukherjee further said that "we must continue to be vigilant and be prepared with the instruments of fiscal and monetary policy to use them as and when the need arises."
Releasing the new series, Commerce and Industry Minister Anand Sharma said, "We hope that it (inflation) will come down. There are various steps taken by the government. Food inflation has been a cause of concern."
The new inflation series with 2004-05 as the base year has 241 more items than the old series with 1993-94 as the base year, which only reflected the price rise in 435 articles.
Edibles and non-edible items widely used by the middle class, like ice-cream, mineral water, microwave ovens, washing machines, gold and silver are reflected in the new WPI inflation series.
According to analysts, overall inflation, which is still close to 9 percent, may prompt the RBI to increase key policy rates by 25 basis points during its review later this week.
Deloitte Principal economist Shanto Ghosh said, "In an absolute sense, inflation is high. Unless there is significant softening in prices across the board, it will be a tough challenge for the government to meet the 5.5 percent inflation target."
