Inflation may come down as commodity prices dive

Commodity prices are on a downhill drive - a glimmer of hope for Indian manufacturers and exporters amid rising inflation, interest rates. Almost all base metals including aluminium, are trading at their calendar year lows, triggered by projections of a tepid economic growth in the West. However, the benefit of lower prices has been negated by depreciation in rupee.

Economists said that the falling commodity prices are a good augury for Indian economy as a whole. "A fall in prices will drive down inflation, which in turn soften interest rates and increase profitability margins. We cannot see all these happening very fast, but these are good tidings, at least for now," said Abheek Barua, chief economist of HDFC Bank.

Lower commodity prices will have a direct impact on profit margins. "Companies engaged in metals mining may not benefit but those who are net commodity importers will benefit. Global prices are bogged down long term pessimism of global economic prospects and we see the falling price trend to continue in the coming months," Barua said.

The London Metals Exchange Aluminium prices have softened to $2,379 a tonne in August from $2,678 in April.

"The drop in commodity prices is definitely good news for consumer goods industries like durable and automobiles manufacturers. Even electrical goods makers stand to benefit, but not the metal companies. The advantage of falling prices at LME is negated by rupee depreciation as the landed cost of these metals will not be substantial," said Anjani Agrawal, partner and sector leader, (metals & mining), Ernst & Young India.