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The Wholesale Price Index (WPI)-based inflation continued to be in the negative in May, for a seventh straight month, though the rate of deflation declined a little from April — at 2.36 per cent in May, compared with 2.65 per cent in April — official data showed on Monday.
The seven-month deflation streak so far has been the longest since the year-long negative inflation seen from July 1975 to June 1976.
In May, however, pulses continued to see inflation. The wholesale price of pulses during the month rose 22.84 per cent on a year-on-year basis, compared with 15.38 per cent in April. (TREND SNAPSHOT)
Notably, retail inflation data had also shown that the price of pulses had in May risen at a higher rate than in April. While the overall retail inflation rose from 4.87 per cent in April to 5.01 per cent in May, inflation in pulses increased from 12.53 per cent to 16.62 per cent during the period. In what could be a worrying sign, the sowing of pulses has also been low so far this year. Compared with 0.27 million hectares during the corresponding period last year, sowing of pulses as of June 12 this year has been on 0.25 million hectares — a decline of 11.8 per cent.
The seven-month deflation streak so far has been the longest since the year-long negative inflation seen from July 1975 to June 1976.
In May, however, pulses continued to see inflation. The wholesale price of pulses during the month rose 22.84 per cent on a year-on-year basis, compared with 15.38 per cent in April. (TREND SNAPSHOT)
Notably, retail inflation data had also shown that the price of pulses had in May risen at a higher rate than in April. While the overall retail inflation rose from 4.87 per cent in April to 5.01 per cent in May, inflation in pulses increased from 12.53 per cent to 16.62 per cent during the period. In what could be a worrying sign, the sowing of pulses has also been low so far this year. Compared with 0.27 million hectares during the corresponding period last year, sowing of pulses as of June 12 this year has been on 0.25 million hectares — a decline of 11.8 per cent.
Going forward, the trend in monsoon, projected to be deficient this year, would guide the sowing pattern. If the projections indeed come true, some parts of Northwest India could face a drought. The Reserve Bank of India, therefore, maintained a cautious stance over the repo rate and lowered it by only 25 basis points earlier this month.
Aditi Nayar, senior economist, ICRA, says: “A rise in inflation for pulses in both WPI and CPI (Consumer Price Index) is a cause for concern, given an uncertainty over the extent and timing of monsoon rainfall in key pulses-growing areas, which have unfavourable irrigation coverage.”
YES Bank chief economist Shubhada Rao says risks to food inflation from sub-normal Southwest monsoon persist, but government measures could mitigate a significant part of those risks.
Given the worry around pulses, the Union Cabinet recently allowed imports to tame prices.
Apart from pulses prices, wholesale food inflation has been on the downward swing. It declined to 3.80 per cent in May, against 5.73 per cent the previous month. This was the fourth straight month to see a decline in food inflation.
Inflation in onions also remained elevated, though the rate moderated from 29.97 per cent in April to 20.41 per cent in May — the fourth month to see inflation of more than 20 per cent. Of these four months, the rate of price rise in onions was the highest in March (36.49 per cent).
In other food items, there either was subdued inflation or deflation. Non-food articles also continued to see deflation in May, at 2.24 per cent, with all broad categories — fibres, oil seeds, minerals — witnessing decline in prices.
The case with fuel and power was similar, as deflation stood at 10.51 per cent in May, slightly lower than April’s 13.81 per cent. All major categories — petrol, diesel, cooking gas —witnessed price declines.
Manufactured products also saw deflation, for a third straight month, at 0.64 per cent in May, against 0.52 per cent in April. This reflects low domestic demand, as well as low prices of import items.
In the case of processed food items, deflation persisted for a second straight month, at 0.64 per cent in May, against 1.05 per cent the previous month.
Sugar, which has been facing glut, saw deflation rising to 9.06 per cent in May from 8.86 per cent the previous month. The government’s strategy to address the issue with sugar prices, therefore, will have to be completely different from those for pulses and onions.
Last week, the Cabinet had cleared Rs 6,000 crore worth of soft loan to the sugar industry, to help mills clear part of their Rs 21,000-crore dues to farmers. However, the industry was not pleased as the problem of oversupply and depressed prices was not taken care of.
With wholesale rates remaining muted for most of the current year, RBI’s focus will remain on retail inflation, says YES Bank’s Rao.
“We believe durable policy actions by the government in food management, ranged movement in oil prices and continued improvement in the quality of spending are likely to assuage RBI’s concerns on the impact of a weak monsoon, thereby creating space for an additional 25-basis-point rate cut in the second half of the current financial year,” she adds.
