Wholesale Price Index (WPI)-based inflation fell to zero in November, compared with 1.77 per cent the previous month, primarily on account of a sharp fall in global commodity prices. That prompted industry leaders to call for an interest rate cut by the Reserve Bank of India (RBI) to spur economic growth.
Deceleration in inflation was witnessed across the broad segments: primary products, including food, fuel items and manufactured items. In fact, primary products (non-processed items) and fuel items saw a decline in prices year-on-year, official data showed on Monday.
It was only in July 2009 that there was disinflation. After that, this is the lowest inflation figure in over five years. The widely tracked food inflation declined to almost zero to stand at 0.63 per cent in the month from 2.7 per cent in October. There was deceleration in inflation across major food articles — cereals, rice, wheat, vegetables, etc. For vegetables, especially onions, the base effect was severe.
A few items such as fruits, milk and potatoes still had elevated inflation in November, even as the rate of price rise declined from the previous month.
Aditi Nayar, senior economist at ICRA, said, “The month-on-month rise in protein items such as pulses and non-vegetarian items in November may continue in the near term, and remain the chief risk for the food inflation trajectory.” She said as the base effect would wane, WPI food inflation on a year-on-year basis could rise sharply in the coming months.
A research note from CARE said, “The only risk factor is a possible increase in agricultural product prices in the next two months as the kharif crop is estimated to be lower this year.”
However, so far, this has not manifested in any significant increase in prices.” Prices could also rise because of lower sowing of rabi (winter-spring) crops this year so far compared with the corresponding period last year.
In recent times, while global crude oil prices have seen a sharp reduction, other commodities have seen a softening trend. Prices of fuel and power, with a weight of 14.91 per cent in the index, declined by 4.91 per cent in November, which meant there was disinflation in the category. While petrol turned cheaper by 9.91 per cent in the month, diesel was cheaper by 2.97 per cent.
Manufactured products, which have a weight of 64.97 per cent in the index, saw inflation go down to 2.04 per cent in November against 2.43 per cent in the previous month. Among broad categories, it was the only one that saw inflation in November. Here, too, food items saw very low inflation at 1.17 per cent, compared to 2.11 per cent in October.
Data released last week showed the Consumer Price Index (CPI)-based inflation fell to the lowest ever level of 4.38 per cent in November. With both WPI and CPI data trending downwards and industrial production contracting sharply, there is growing pressure on the RBI to cut interest rates. The RBI has resisted pressure on the grounds that the recent fall in inflation is transitory in nature and the full impact of a sub-par monsoon is yet to play out.
“From a monetary policy perspective, the recent decline in commodity prices amid the continued easing of structural drivers of retail inflation is likely to alleviate the RBI’s concerns on inflation,” said YES Bank chief economist Shubhada Rao. “We expect the monetary policy to turn accommodative from February 15 onwards, with cumulative easing of 75 bps during the course of the next 12 months.” However, Nayar said the lower than expected WPI figure for November was unlikely to hasten rate cuts.