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Wholesale Price Index (WPI)-based inflation dropped to 2.38 per cent in September, the lowest since October 2009 (1.78 per cent), prompting industry to urge the Reserve Bank of India (RBI) for a rate cut to propel industrial growth, which fell to a five-month low in August.
WPI inflation stood at 7.05 per cent in September 2013 and 3.74 per cent in August this year.
For September this year, all three broad categories — primary products, manufactured items, and fuel & power — saw a fall in inflation.
Data released on Monday showed in September, Consumer Price Index (CPI)-based inflation fell to 6.46 per cent, the lowest so far. Since WPI is a lead indicator for CPI, retail price inflation might decline further in the coming months. However, the festive months of October and November might come in the way.
WPI inflation stood at 7.05 per cent in September 2013 and 3.74 per cent in August this year.
For September this year, all three broad categories — primary products, manufactured items, and fuel & power — saw a fall in inflation.
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Data released on Monday showed in September, Consumer Price Index (CPI)-based inflation fell to 6.46 per cent, the lowest so far. Since WPI is a lead indicator for CPI, retail price inflation might decline further in the coming months. However, the festive months of October and November might come in the way.
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RBI has set a target of reining in CPI inflation at eight per cent by January 2015 and six per cent by January 2016. Though it has voiced comfort on its January 2015 target, it expressed apprehension about the January 2016 target.
Industry chambers — the Confederation of Indian Industry, the Federation of Indian Chambers of Commerce and Industry and the Associated Chambers of Commerce and Industry —urged RBI to focus on growth. The Federation of Indian Export Organisations asked RBI to cut the policy rate, as growth in exports had fallen to 2.35 per cent in August.
Economists are divided on RBI’s course of action. Madan Sabnavis, chief economist at CARE Ratings, said the central bank might go for a rate cut in the fourth quarter of 2014-15, but might advance this if retail price inflation remained about seven per cent in the next two months.
What could come in the way is the projection of lower kharif output. According to the government’s first advanced estimate, food grain production is expected to decline seven per cent to 120 million tonnes (mt) this kharif season, against 129 mt last year. While production of pulses is forecast to decline 15 per cent, oilseeds output is estimated to fall 12 per cent.
“We continue to expect RBI to maintain a prolonged pause in FY15 and cut rates only when there is unambiguous visibility of inflation trending closer to the January 2016 target of six per cent,” said a note by YES Bank. The note said there was a reasonable likelihood of structural factors providing gradual disinflationary impulses, providing scope for monetary easing in the first half of 2015-16.
“We continue to maintain a prolonged pause on rates,” said Soumya Kanti Ghosh, chief economic advisor, State Bank of India.
In September, WPI-based food inflation decreased to 3.52 per cent from 5.15 per cent in August. Vegetables turned cheaper by 14.98 per cent, against 4.88 per cent in August. Prices of onions fell 58 per cent in September, against 44.7 per cent in August, while prices of tomatoes rose 7.34 per cent, compared with 71.59 per cent in August.
“It is heartening to note we have been able to bring food inflation under control. Growth in vegetable and protein prices, which have been contributing to the recent increase in inflation, have shrunk, thanks to the steps taken by the government. We are committed to continuing reforms in food markets that will improve supply responses and keep inflation low and stable. At the same time, fiscal consolidation and a new monetary policy framework will help bring down inflationary expectations. We are confident soon, we will be achieving low and stable inflation,” said Finance Minister Arun Jaitley.
Potato prices, however, continued to soar, rising 90 per cent in September, against 62 per cent in August.
Inflation for fruits stood at 20.95 per cent in September, against 20.31 per cent in the previous month.
While eggs, meat and fish turned cheaper by 4.12 per cent (against 5.87 per cent in August), wheat prices fell 1.5 per cent, compared with a rise of 0.67 per cent in August.
The decline in global crude oil prices led to fuel & power inflation falling to 1.33 per cent from 4.54 per cent in August. In September, prices of administered petrol fell 9.42 per cent, against 0.15 per cent in the previous month.
The fact that demand for manufactured items declined 1.4 per cent in August resulted in subdued inflation for manufactured goods. Prices of such products rose 2.84 per cent, against 3.45 per cent in the previous month.
In September, core inflation — inflation for manufactured items excluding processed food — declined to a 16-month low of 0.06 per cent on a month-on-month basis. Annually, it stood at 2.8 per cent.
(With inputs from Thomson Reuters)
* Note: The base year for WPI inflation is 2004-05
(Source: Department of Commerce, Ministry of Statistics and Programme Implementation)
