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Wholesale Price Index-based Inflation fell by 0.5 percentage points to 5.2 per cent in April from 5.7 per cent in March, providing some relief to a new government amid other deteriorating macroeconomic numbers such as retail inflation and industrial output.
All three major components of the index — food, fuel and manufactured goods — recorded moderation in inflation on account of a lower base. The movements were in contrast to Consumer Price Index-based (CPI-based) inflation, the new nominal anchor for the Reserve Bank, which rose to a three-month high of 8.59 per cent in April. So, despite a decline in WPI, any monetary easing by the central bank on June 3 (when it is to review this) is unlikely.
The index of primary articles (non-processed items) rose at a lesser rate of 7.06 per cent in April, compared with 7.66 per cent in March. Food articles' price rise was also lower at 8.64 per cent against 9.9 per cent in March, while prices of non-food articles increased by 3.15 per cent compared to 4.62 per cent the previous month.
The trajectory of inflation, particularly food, would depend on the monsoon rain, predicted as slightly below normal by the Met Department, as well as slightly delayed. The finance ministry expressed hope that the declining trend would continue but sounded caution on the possibility of a weak monsoon. “We believe we need to be cautious and alert. But we have adequate stocks of foodgrains to meet any eventuality. Therefore, I do not believe a slightly sluggish monsoon is going to really impact the supply chain in a manner that will be disruptive," said Economic Affairs Secretary Arvind Mayaram.
Vegetable prices increased a mere 1.3 per cent on a year-on-year basis but India Ratings & Research cautioned the risk of these rates rising again still loomed large amid prediction of a sub-normal monsoon.
Inflation in items such as rice, milk, eggs, meat & fish, and pulses has remained consistently high and India Ratings said it would remain elevated unless structural factors, including productivity and bottlenecks in the agricultural supply chain, were addressed.
Fuel and power prices rose 8.93 per cent in April, slower than 11.22 per cent in March. \"Factors such as the delay in resetting of diesel price and electricity tariffs (rates) contributed to the lower-than-expected WPI," said Aditi Nayar, senior economist, ICRA.
Prices of manufactured products, the largest weight in the WPI, rose at a moderated rate of 3.15 per cent in April from 3.23 per cent in March. There was a decline in core (non-food and non-fuel) inflation to 3.5 per cent in April.
"Notwithstanding the decline in core WPI, the RBI is expected to maintain status quo on the repo rate in the June policy review, with concerns related to the impact of a potentially unfavourable monsoon on the CPI trajectory remaining paramount,\" Nayar said.
The central bank is also likely to hold rates since CPI-based inflation rose to a three-month of 8.59 per cent in April.
RBI Governor Raghuram Rajjan gave enough hints of it when he said in Shimla, \"Our best tool to control inflation is the interest rate.\" Talking to reporters on the sidelines of the RBI board meet, he said the central bank was expecting some increase in the CPI number because of the seasonal effects from vegetable prices but it came more than was anticipated by the consensus forecast. RBI has set a target of eight per cent CPI by January 2015.
Rising retail price inflation will be a big challenge for the next government if it wants RBI to bring down rates to revive investment. "For the new government this would be the single biggest challenge. We look forward to a comprehensive action plan to tackle this situation," said Sidharth Birla, president, Federation of Indian Chambers of Commerce and Industry.
Rajan also said the government also had tools such as raising agricultural production and improving of supply. Adding that both RBI tools and government measures needed to work together \"and will work together\".
Soumya Kanti Ghosh, chief economic advisor of State Bank of India, said he expected even WPI inflation to increase further for some time before cooling.
"WPI inflation will increase in May and will be closer to 5.5 per cent, before starting to decline from June, on the back of a favourable base. However, our trend analysis since FY91 suggests linkage between a stable government at the Centre and inflation, through a clear curtailment of inflationary expectations," he said a day ahead of the Lok Sabha results.
