Deflationary trend continued for the 16th month in a row as wholesale prices declined by 0.91 per cent in February, prompting India Inc to press for a rate cut by RBI to boost factory output, which has been contracting since November.
Subdued prices of certain food items and petroleum products kept the WPI (Wholesale Price Index) inflation at (-)0.91 per cent in February as against (-)2.17 per cent a year ago. It was (-)0.9 per cent in January.
This is the 16th consecutive month since November 2014 when the deflationary pressure has persisted.
Food inflation stood at 3.35 per cent in February compared with 6.02 per cent in January, showed official data, which was released today.
In view of declining inflation and negative industrial outlook, the industry stepped up its demand for an interest rate cut by Reserve Bank in its first bi-monthly monetary policy for 2016-17 on April 5.
"A further cut in the policy rate at this juncture and its transmission by the banks in the form of lower lending rates would benefit both, companies and consumers alike, and impart some momentum to the still weak investment and consumption cycle," Ficci said.
Meanwhile, Assocham too pressed for a rate cut arguing the government has fulfilled its commitment of sticking to the fiscal consolidation path by deciding to keep the deficit for 2016-17 at 3.5 per cent of GDP.
"Therefore, it gives the room to RBI to ease liquidity and reduce interest rates to dispense with deficient demand in the economy," Assocham said.
The inflation print in the fuel and power segment was (-)6.40 per cent and for manufactured products, it read (-)0.58 per cent in February.
However, deflationary trend continued in some items like
petrol at (-)8.65 per cent and minerals (-)3.44 per cent.
The inflation print for manufactured articles read at 2.42 per cent in August, up from 1.82 per cent in July.
ICRA further said core-WPI inflation is expected to inch up further in the coming months and remain in a range of 0.5-2 per cent in the remainder of this fiscal.
The WPI inflation for June has been revised upwards at 2.12 per cent, against provisional estimate of 1.62 per cent.
"Wholesale inflation has undergone a sizable upward revision of 40-50 basis points for the last four months, which is a source of some concern," Nayar said.
WPI inflation is expected to print between 4-4.5 per cent in the remainder of 2016, whereas CPI inflation would range within 4-5 per cent in the same months, ICRA said.
The rise in WPI inflation in August is in contrast to the retail inflation which eased to a five-month low of 5.05 per cent in the month.
The cooling of retail inflation and 2.4 per cent contraction of factory output in July has revived hopes for a rate cut by RBI in its next policy meet on October 4 to boost growth.
In its monetary policy review last month, the RBI had maintained status quo on key rates citing upside risks to 5 per cent inflation target for March 2017.
Moving towards the new regime, the government had in July notified 4 per cent inflation target for the next five years, based on which the monetary policy committee (MPC) would take its decisions going forward.
It also provides for a margin of plus or minus 2 per cent in this target, thus fixing the upper tolerance level at 6 per cent till 2021.
The MPC will set interest rates by majority, with a casting vote for the central bank governor in the event of a tie.
Out of six members of MPC, three will be from RBI - the Governor, who will be the ex-officio Chairperson, a deputy governor and an executive director.
The other three members will be appointed by the central government, on the recommendations of a search-cum-selection committee, headed by the Cabinet Secretary.
It remains to be seen whether the October 4 policy could be decided by the MPC.
