Wholesale inflation eases to five-year low in October, but RBI unlikely to cut rates

Shishir Sinha New Delhi | Updated on March 13, 2018



Third piece of good news for the economy this week

Wholesale inflation dipped to a five-year low in October, bringing more cheer to the economy, but economists do not expect it to result in a rate cut when the Reserve Bank of India reviews its monetary policy on December 2.

The annual rate of inflation, based on the monthly Wholesale Price Index (WPI), stood at 1.77 per cent for October against 2.38 per cent in September and 7.24 per cent during the same month last year. The rate of inflation implies the rate of price increase, a lower rate means that price increase was moderate.

This is the third positive data in the past couple of days. On Wednesday, factory output registered a growth of 2.5 per cent in September, against 0.4 in August. Retail inflation rate too hit a new low of 5.52 per cent in October on the back softening food prices. .

The WPI is lower due to the continuing fall in food prices, including vegetables, and fuel.

Food inflation, which has been on a decline since May, fell to a nearly two-and-half year low of 2.7 per cent. In the case of vegetables, the price contraction was 19.61 per cent, while for protein-rich items such as egg, meat and fish, it was 2.58 per cent in October. For manufactured products such as sugar, edible oils, beverages and cement, inflation fell to 2.43 per cent against 2.84 per cent. The August WPI inflation was revised upwards to 3.85 per cent from 3.74 per cent earlier. Inflation in the fuel and power segment that includes LPG, petrol and diesel declined to 0.43 per cent, compared to a rise of 1.33 per cent in September.

Economists’ view

Rohini Malkani, economist with Citi group, said the normalisation in inflation has been faster than growth. “We maintain our view that the RBI is likely to cut repo rates by 100 bps (100 basis points or 1 per cent) cumulatively by end of FY16 (75 bps by end 2015), to maintain at least 100 bps real rate over its CPI target,” she said.

Aditi Nayar, senior economist, ICRA, said the decline in the WPI was led by falling global commodity prices, a favourable base effect and diesel regulation, and was not indicative of a sharp correction in domestic demand conditions. “Notwithstanding the sharper-than-expected fall in the WPI in October 2014, we expect the RBI to remain on hold in the next two policy meetings,” she said.

Chandrajeet Banerjee, Director General, CII, said going forward the deceleration in global commodity prices as also the Government’s commitment to keep inflation under check would help rein in inflationary expectations and reduce the upside risks.

Published on November 14, 2014

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