Common man got a much needed relief on Friday when inflation eased to an eight-month low of 5.05 per cent in January prompting India Inc to press the Reserve Bank to ease interest rates to perk up investment sentiment and kick start growth.
“The declining trajectory of inflation should spur the RBI to revisit its monetary policy stance and cut policy rates to rejuvenate growth in the industry which has been hit by high interest costs and flagging investment,” CII Director General Chandrajit Banerjee said. The second straight month of deceleration in inflation as measured by the wholesale price index has given a breather to the Reserve Bank, which has been trying to tame rising prices.
WPI inflation was at 6.16 per cent in December compared with 7.52 per cent in November. January’s inflation rate is the slowest since May 2013, when wholesale prices increased 4.58 per cent. Inflation in food articles in January came down to 8.8 per cent as against 13.68 per cent in the preceding month, according to data released on Friday. “Food inflation remains elevated in spite of the overall favourable Monsoon and agricultural production scenario, highlighting the demand-supply gaps and issues related to the supply chain,” ICRA Senior Economist Aditi Nayar said.
As per the WPI data, prices of vegetables rose 16.6 per cent in January compared with a 57.33 per cent increase in December. Onion prices climbed 6.59 per cent compared with a 39.56 per cent increase in December. Potato prices climbed 21.73 per cent in January. Fruits were cheaper, as were protein-rich items such as eggs, meat and fish. However, inflation in milk inched up slightly to 7.22 per cent in January.
Data released this week showed retail inflation declined to a two-year low of 8.79 per cent in January, while industrial output in December shrank 0.6 per cent, prompting calls by industry for an interest rate cut to boost growth. “We must and very urgently concentrate on reviving growth for the manufacturing sector and lay special emphasis on resolving problems of the MSME sector also,” Ficci President Sidharth Birla said. According to the WPI data, inflation in primary articlesand in the fuel and power segment was at 6.84 per cent and 10.03 per cent, respectively.
Inflation in manufactured products such as sugar and edible oils was up marginally at 2.76 per cent on a monthly basis. The Reserve Bank had increased a key interest rate by 0.25 per cent to 8 per cent in its Third Quarter Review of Monetary Policy on January 28. The central bank factors both retail and wholesale price based inflation data in its monetary policy.
“In the absence of an upside surprise in the inflation trajectory or in inflation expectations, it is likely to hold policy rates steady in the coming months,” Barclays said in a research note. There have been demands from various quarters that the RBI should look at relaxing interest rates as inflation has showed signs of easing while the slowdown in industrial output has persisted.
A Finance Ministry document said high inflation poses a big threat to growth as it would impair the ability of the Reserve Bank to cut interest rates to boost economic activities. “The outlook on growth is...Threatened by certain downside risks; the biggest of them being the high rate of inflation, which further dents the ability of the RBI to extend monetary policy support to growth revival,” it said. Economic growth fell to a decade-low of 4.5 per cent in 2012-13 fiscal and is estimated at 4.9 per cent in current financial year.