WPI contracts 2.65% in April

This is the sixth straight decline in wholesale prices

Wholesale price index (WPI)-based deflation continued in April for a sixth month in a row. General wholesale prices fell 2.65 per cent in April, the most in not only these six months but also since the new WPI series was launched in 2004-05. The deflation in March was 2.33 per cent. There was inflation of 5.55 per cent in April of 2014.

However, food articles defied the general deflationary trend, even as its inflation eased in April to 5.73 per cent against 6.31 per cent in March, showed official data issued on Thursday.

The third advance estimate of the agriculture ministry put foodgrain output five per cent lower in 2014-15 from the previous year. It is yet to be seen if this would raise inflation in this segment.

These days, the Reserve Bank of India (RBI) factors in the consumer price index (CPI) for its monetary stance. With CPI inflation declining to a four-month low of 4.86 per cent, economists expect RBI to cut the policy rate by 0.25 per cent in its June monetary review. However, some advise caution, due to the food part of the inflation. Even as inflation in food items declined in April compared to March, the rate of rise in prices was higher for pulses, fruit, eggs, meat and fish. “The lagged impact of unseasonal rain, coupled with rising mercury levels, is beginning to have its adverse impact on food prices...This calls for action from the government in the space of food management and supply chain,” said YES Bank chief economist Shubhada Rao.

She said there was a window for RBI to ease the repo rate by 25 basis points in the June policy review, as with a muted WPI for most of the year, the focus of the central bank would remain on CPI infaltion.

At an event in Delhi, former RBI deputy governor Subir Gokarn said, “The domestic compulsion is clearly in favour of reducing rates. Inflation is lower than expected. Food prices have not responded to weather destruction.” To a query, he said the monsoon might bring in food risk but the government can effectively use its stocks. However, he was not asked a question specifically related to WPI inflation.

Movement of prices, based on the wholesale price index | Create infographics

Movement of food prices | Create infographics

Anis Chakravarty, senior director, Deloitte in India, said, “We expect the fiscal and monetary authorities to be vigilant on food prices as the threat of another bad monsoon season looms large.” That apart, there was deflation in the April data in broad category and most segments within these.

Take non-food articles, whose prices decreased by 6.16 per cent in April, though at a lower rate than the 7.12 per cent in March. All the segments —fibres, oilseeds, minerals — showed deflation. Fuel and power showed deflation at 13.03 per cent in April against 12.56 per cent in March. Petrol, diesel, and liquefied petroleum gas saw prices falling in April. Manufactured products saw the rate of fall in prices increasing to 0.52 per cent in April against 0.19 per cent in March.