With the downward trend of retail inflation, deflationary pressure has been continuing for the sixth month in a row. Hoping for a better environment for the industry as well as common man, drop in fuel prices and manufactured items has pulled the inflation to a new low of (-)2.65 per cent in April. The sentiment, however it seems, has prompted industry to demand a rate cut by the Reserve Bank of India (RBI).
Inflation, as measured on the Wholesale Price Index (WPI), has been in the negative zone since November, 2014. In April last year, it was 5.55 per cent. The deflationary trend has bolstered the case for a rate cut by RBI as retail inflation has also eased and industrial production is down, according to industry experts. “The data reinforces our expectation of a high probability of 0.25 per cent rate cut in June 2 RBI policy,” ICRA Senior Economist Aditi Nayar.
When asked if he expects the RBI to cut rates at its June 2 monetary policy review, Finance Minister Arun Jaitley said, “I expect what every Indian expects.” As per the data released on Thursday, manufactured products witnessed deflation for the second consecutive month in April as inflation dropped to a record low of (-)0.52 per cent.
Inflation in food articles category stood at 5.73 per cent, as against 6.31 per cent in March. Fuel and power inflation was (-)13.03 per cent in April. Industry chambers raised clamour for lower interest rates, saying the data provides ample space for RBI to slash the key policy rate to fuel investments and propel growth.
The February WPI inflation has been revised downwards to (-)2.17 per cent as against the provisional estimate of (-)2.06 per cent. On the macro economic condition, Jaitely, however, said, “Economy is in a recovery stage. Inflation is under control, growth is better, fiscal deficit, current account deficit (CAD) is also under control too. From despondency, we have entered a positive zone.”
As per the WPI data, potato prices saw the steepest fall of (-)41.14 per cent in April. For vegetables, the decline was (-)1.32 per cent. However, inflation in pulses was up at 15.38 per cent, and for egg, meat and fish at 4.01 per cent. Some experts cautioned that a poor monsoon could stoke food inflation in the months to come. “Going forward, we expect the fiscal and monetary authorities to be vigilant on the food price front as the threat of another bad monsoon season looms large,” Deloitte (India) Senior Director Anis Chakravarty said.
For the second successive year, monsoon is likely to be below normal in the current year at 93 per cent, as parts of north-west and central India may be the most affected, according to an official forecast. Commenting on the inflation data, CII Director General Chandrajit Banerjee said, “The benign inflation outlook should provide sufficient elbow room to the RBI to continue with growth inducing policy in its forthcoming monetary policy announcement.” RBI has reduced repo rate by 0.5 per cent since January as inflationary pressures eased. However, it did not change the rate at its April 7 policy. WPI inflation was (-)2.33 per cent in March, (-)2.17 per cent in February, (-)0.95 per cent in January, (-)0.50 per cent in December and (-)0.17 per cent in November.