Wholesale inflation rises to 0.11% in Dec from flat prices in Nov

Rises to 0.11% in Dec from 0% in Nov; RBI might lower interest rate

After declining for six months, wholesale price index (WPI)-based inflation rose marginally to 0.11 per cent in December from zero per cent the previous month, mainly on account of an increase in prices of food items, particularly fruit.

However, inflation in manufactured products, which have the highest weight on WPI (almost 65 per cent), declined on low demand and global cues. Fuel prices also declined as global crude oil rates fell, official data showed on Wednesday.

Overall, inflation remained moderate, if marginally higher than November, raising hopes the Reserve Bank of India (RBI) might lower the policy rate next month or after presentation of the Budget, to spur economic growth. Though RBI now tracks retail inflation more than wholesale, WPI-based inflation is a lead indicator for  even retail price inflation.

During the month, the rate of retail inflation also increased a little — to five per cent from an all-time low of almost 4.4 per cent in November.

In the September quarter of the current financial year, the rate of India’s economic growth declined to 5.3 per cent, compared with 5.7 per cent the previous quarter. And, official data released so far have given little hope of resurgence soon. The country’s industrial production, for example, contracted 4.2 per cent in October and rose 3.8 per cent in November.

“...We expect RBI to cut the policy repo rate by 25 basis points in the next policy review to be held on February 3,” Madan Sabnavis, chief  economist with CARE Ratings, said.

 

YES Bank chief economist Shubhada Rao said continued decline in commodity prices amid easing of structural drivers has led CPI inflation to undershoot RBI’s envisaged trajectory. “This should give RBI the comfort to turn its monetary policy accommodative in the coming review. We anticipate a 25 basis point reduction in the policy rate in February, on course for a 75 bps (cut) during 2015.”

Anis Chakravarty, Senior Director, Deloitte in India, also said the latest set of macro economic numbers increases chances of a rate cut in February.  He, however, added, “Though we would continue to believe that rate cuts are more likely to come after the Union Budget has been presented.”

The rate of wholesale food inflation in December rose to 5.22 per cent from 0.63 per cent the previous month, data released on Wednesday showed. The food inflation had fallen for four consecutive months till November. Inflation in fruit prices stood at 17.87 per cent, compared with 14.78 per cent in November, while the rate of inflation in milk dropped marginally to 9.72 per cent in December from 10 per cent the previous month.

The rate of price rise or prices themselves declined for other food items during December. For instance, overall vegetable prices fell 4.78 per cent in December; though the rate of contraction in November was much higher at 28.57 per cent.

The prices of non-food items within the primary group (those in the raw form) also declined, by 3.06%; the pace of drop was down from 3.65% in November.

The fuel & power category saw a contraction of 7.82% in prices, compared with 4.91% in November. Within this segment, petrol turned 11.96% cheaper, against 9.96% the previous month. Diesel was 6.31% less expensive in December, compared with 2.97% in November, which may further reduce inflation due to its impact on cost of transportation..

Inflation in manufactured items declined to 1.57%, against 2.04% in November. Food products within this category saw inflation rising a little, to 1.71% from 1.17% the previous month.
 

CONTROLLED SO FAR

December inflation in key segments (in brackets, November data) in %

Manufactured products: 1.57 (2.04)

Primary articles: 2.17 (-1.98)

Food articles: 5.2 (0.63)

Fuel & power group: -7.82 (-4.91)