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With both Wholesale Price Index (WPI) and Consumer Price Index (CPI) hitting historic lows for July, Finance Minister Arun Jaitley on Friday renewed his pitch for further policy rate cuts by the RBI to push economic growth.
“We all know the relationship between inflation and interest rates,” Jaitley told reporters, when asked if he expects the central bank to cut rates on the back of the two favourable inflation prints in the last few days.
On Friday, the WPI-based inflation for July came in at (-) 4.05 per cent — the ninth straight month of contraction, confirming the deflationary trend in the economy. WPI inflation for June stood at (-) 2.4 per cent.
The latest WPI print follows the record low July CPI inflation of 3.78 per cent released a few days ago.
“Inflation is under control. WPI inflation at (-) 4.05 per cent is a positive sign. This speaks of the stability of the economy we are in. All economic indicators, including manufacturing and IIP, are encouraging. Indirect tax collections are also very encouraging,” Jaitley said.
The July WPI print cheered the stock market as it strengthened the expectations that the Reserve Bank could go in for an out-of-turn rate cut.
Chief Economic Advisor Arvind Subramanian said the latest WPI, CPI and other data, such as bank deposits and gold imports, point to a big structural shift in the underlying process of inflation, which is very encouraging.
Yuan devaluation On the recent devaluation of the Chinese yuan and its impact on the rupee, Subramanian said that this should be seen as a “temporary adjustment”.
The decline in WPI for July was largely due to a fall in food articles inflation and commodity prices.
Manufactured products — which has a weight of 65 per cent in the WPI basket — declined to (-) 1.47 per cent from 0.77 per cent drop in the previous month.
Meanwhile, food articles inflation declined to (-) 1.16 per cent against 2.2 per cent.
While vegetable price inflation contracted 24.52 per cent against contraction of 7.07 per cent in June, the main concern was on the pulses front, which saw 35.7 per cent increase during the month under review.
The CPI — which is the main index focused by the central bank — too had fallen sharply in July, raising expectations that the RBI could move even before September 29, which is the next date of Monetary Policy review.
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