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A sharp fall in global commodity prices had a salutary impact on wholesale price index (WPI)-based inflation in August, which hit a five-year low at 3.74 per cent.
Falling food articles inflation — which too hit a five-year low at 5.15 per cent — besides the substantial impact of softening fuel prices bolstered the downward trend.
The WPI of 3.74 per cent for August was lower than 5.19 per cent in July and 6.99 per cent in August last year, official data released on Monday showed.
“International commodity and crude prices have corrected to multi-year lows. The softening in global crude prices is playing out. As much as two-thirds of global prices have an impact on WPI,” Saumya Kanti Ghosh, Chief Economic Advisor, State Bank of India Group, told BusinessLine .
Given that core inflation had trended down, one can expect the whole year average for WPI to be around 4-4.5 per cent, Ghosh said. He expects the consumer price index (CPI) for 2014-15 to be around 7.5-7.7 per cent. This average is lower than the 8 per cent target set by the Reserve Bank of India for January 2015.
The declining trajectory in WPI and the CPI-based inflation notwithstanding, the RBI will keep policy rates unchanged on September 30, say economy watchers.
Confederation of Indian Industry Director-General Chandrajit Banerjee said “coming shortly before the Monetary Policy, this (falling inflation) should provide the necessary manoeuvring space to the RBI”. FICCI President Sidharth Birla said “This is definitely a good sign”. But prices of food items at the retail end continue to be a cause for concern, he added.
Despite WPI inflation cooling off, the benchmark equity indices were not enthused and plunged 1 per cent on Monday due to disappointing industrial production data and weak global cues.
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