Retail, wholesale inflation cools in June as cereal prices dip

K. R. Srivats Updated - July 14, 2014 at 10:52 PM.

Eases pressure on RBI Governor Rajan; but worries over weak monsoon remain

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Aided by lower cereal prices, retail as well as wholesale price index (WPI) based inflation came in at lower-than-expected levels for June, signalling that better days may be round the corner for the inflation battered common man.

Cereals have a higher weightage in consumer price index (CPI)-based inflation, which registered a 29-month low of 7.31 per cent. The figure for June 2013 was 9.87 per cent.

The latest retail inflation print was also lower than the 8.24 per cent CPI inflation recorded in May this year.

This could ease pressure on Reserve Bank of India Governor Raghuram Rajan on the policy rates front.

The economy is on course for below-8 per cent inflation this fiscal year, Rajan had said on July 10, the day the Budget was announced.

The central bank is now guided more by the retail inflation movement than WPI inflation. The next policy review is due on August 5.

The core CPI inflation for the month under review stood at 7.3 per cent (7.74 per cent in May 2014).

Food inflation for June was at 7.90 per cent, much lower than 9.56 per cent in May.

Vegetable price inflation came in at 8.73 per cent (15.27 per cent)

Meanwhile, the WPI for June moderated to 5.43 per cent from a five-month high of 6.01 per cent in May. It was 5.16 per cent in June 2013.

However, the WPI for April 2014 was revised upwards to 5.55 per cent from the 5.2 per cent estimated earlier.

Factory output had gained the most in 19 months in May, rising 4.7 per cent as against 3.4 per cent in the previous month, Government data released on July 11 showed. Reacting to the inflation numbers for June, Soumya Kanti Ghosh, Chief Economic Advisor to the SBI Group, told BusinessLine that the decline in cereal prices had pulled down the Consumer Price Index, apart from the base effect playing a role.

He does not expect the RBI to cut policy rates despite the softening in inflation rates. Going forward, Ghosh expects CPI inflation to moderate to 6 per cent in October or November.

But the risk to inflation remains on account of a weak monsoon, he said, adding that a cautious approach was needed.

Chandrajit Banerjee, Director-General of CII, said that moderation in inflation together with the rebound in industrial production provide a positive signal that green shoots of recovery could be around the corner.

In this context, the Budget has provided a bold and positive thrust to agriculture, he said, expressing hope that the measures announced would be implemented on the ground to address supply-side bottlenecks.

srivats.kr@thehindu.co.in     

Published on July 14, 2014 12:40