With cheaper commodities and Reserve Bank of India’s rate cut hopes, Wholesale Price Index (WPI) inflation continued to be in negative zone for 10th month in a row, plunging to a historic low of (-) 4.95 per cent in August. Retail inflation also followed the similar trend, falling to a new low of 3.66 per cent in August due to a slower rate of price rise in vegetables, fruits and protein items, except pulses.
As far as the prices of onion and pulses are concerned, wholesale prices of most of the food articles either declined or showed a very marginal increase during the month. Experts feel that this continued deflationary trend may prompt the central bank to cut rates at its policy meet on September 29.
Reacting to such downward trend Economic Affairs Secretary Shaktikanta Das has said that there has been a considerable improvement in the price situation. “RBI will take a considered call on the issue. There is no divergence in perception. The Government and RBI are working together. Taking into account the overall factors, RBI will take a considered call,” Das said.
The WPI-based inflation was (-) 4.05 per cent in July. It has been in the negative zone since November 2014. In August last year, it was 3.85 per cent. Inflation in onions and pulses was at 65.29 per cent and 36.40 per cent respectively during August, as per official data released on Monday.
Food inflation measured on Consumer Food Price Index during the month, however, rose slightly in August at 2.20 per cent as against 2.15 per cent in July 2015, the Government data showed. “In August 2014, retail inflation was at 7.03 per cent. The Consumer Price Index (CPI)-based retail inflation for July 2015 was revised downwards to 3.69 per cent from 3.78 per cent,” the data said.
Overall, food inflation basket remained in the negative territory for second month in a row at (-) 1.13 per cent. For vegetables, it was (-) 21.21 per cent, helped by potato where inflation was (-) 51.71 per cent. Inflation in the fuel and power segment was (-) 16.50 per cent, while that of manufactured products was (-)1.92 per cent in August.
Industry body FICCI President Jyotsna Suri said, “Under the present circumstances, it would be most appropriate for the RBI to give weight to growth considerations and announce a deeper cut in the policy rate.”
As the RBI’s next bi-monthly monetary policy review is on September 29, deciding on the key interest rate on the tracks of Consumer Price Index-based inflation will be vital factor for the central bank.
As per the data, the CPI in July was at record low of 3.78 per cent. Given that CPI inflation has also been declining, the RBI needs to reduce interest rates sharply to drive a recovery in demand, another industry body CII said. “We expect the RBI to reduce interest rates by 0.50 per cent in the forthcoming policy with statements supporting further easing in the near future,” CII Director General Chandrajit Banerjee said.
As per the data, besides pulses and onion, the food items which got dearer during August are eggs, meat and fish (3.30 per cent), milk (2.08 per cent) and wheat (2.05 per cent). “The hardening of food prices in August 2015 relative to the precious month was on expected lines, led by onions and pulses, and in sync with the seasonal hardening observed in the past years,” ICRA Senior Economist Aditi Nayar said.
Inflation data for June has been revised to (-) 2.13 per cent, as compared to provisional estimates of (-) 2.40 per cent. “Movement of WPI will have an impact on CPI also and chances of a 25 basis point cut in repo rate on September 29, has brightened the chance,” said India Ratings & Research Chief Economist Devendra Kumar Pant.
Recently, Chief Economic Advisor Arvind Subramanian had flagged deflationary fears in the economy, while NITI Aayog Vice-Chairman Arvind Panagariya had pitched for cut in policy rate by 0.50 per cent to 1 per cent saying that ‘this lever’ can be used to boost growth.