Close on the heels of retail inflation declining to a record low of 6.46 per cent in September, softening food prices pulled down the headline (wholesale price) inflation to a near five-year low of 2.38 per cent last month, which may nudge the Reserve Bank of India (RBI) to cut key interest rates.
The downward trend in wholesale and retail inflation has come at a time when owing to massive fall in global crude prices (standing at $88 per barrel), diesel and petrol prices may be trimmed, which in turn will ease inflationary pressures.
As per data released by the Government on Tuesday, the Wholesale Price Index (WPI) based inflation was at 3.74 per cent in August this year and 7.05 per cent in September 2013. Wholesale inflation in onion contracted to 58.12 per cent in September as compared to a contraction of 44.7 per cent in the previous month.
While inflation in vegetable basket as a whole shrunk to 14.98 per cent in September, rate of price rise in potato was at 90.23 per cent from 61.61 per cent in the previous month.
Commenting on the data, industry body CII said going forward, the downslide in global commodity prices led by fuel together with other factors should help contain inflation. “This would provide space to the RBI to review its cautious stance on interest rates,” CII said.
FICCI said the decline in inflation is getting broad based and indicates inflationary pressures waning as of now. “...The prices are expected to remain moderate. CPI inflation is moving in consonance with RBI’s target rate and this should bring in some breathing space,” the chamber said.
The RBI, which maintained status quo in interest rate since January, will come out monetary policy review on December 2. The Reserve Bank primarily factors in Consumer Price Index (CPI) inflation while framing monetary policy. It is targeting 8 per cent retail inflation by January 2015 and expects to further bring it down to 6 per cent by January 2016.
The data further revealed that inflation in milk, eggs, meat and fish continued to decline in September as well. However, there was slight increase in the prices of fruits during the period.