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Wholesale inflation falls to historic low; rates cut may follow

Friday, Aug 14, 2015,18:17 IST By metrovaartha A A A

New Delhi | Deflationary trends continued for the ninth month in a row in July with wholesale inflation plunging to a historic low of (-)4.05 per cent on cheaper vegetable and fuel, which may prompt RBI to cut interest rate ahead of the September 29 policy meet.
The WPI number follows retail inflation (CPI) data, which had slipped to a record low of 3.78 per cent in July.
The overall wholesale price index-based (WPI) inflation was (-)2.40 per cent in June, government data showed today. It has been in the negative zone since November 2014. A year ago in July 2014, inflation was 5.41 per cent. During the month, pulses, milk, edible oil, egg, meat and fish turned dearer. RBI Governor Raghuram Rajan after the monetary policy announcement on August 4 had said the central bank may cut interest rate even out of the policy cycle depending on how macroeconomic indicators play out. We are waiting for information.
There was more need to move fast in the early stages of the turnaround. We will take all information into account and decide whether at times it warrants moving in between policy cycle or it does not, he had said after the policy meet.
RBI mostly tracks the consumer price inflation for its policy decision, and its next review is due on September 29.
India Inc today said the downtrend in both WPI and retail inflation numbers coupled with sluggish industrial output data make a strong case for the Reserve Bank to cut interest rate ahead of its September 29 review. The distinct downturn in both retail and headline inflation and soft inflationary scenario make a strong case for RBI to resume its accommodative policy stance and reduce interest rates even before the next monetary policy, CII Director General Chandrajit Banerjee said.
We expect that the decline in global commodity prices and better-than-expected trajectory of monsoon would prevent inflation from moving up during the year, he added. Deflationary trends continued for the ninth month in a row in July with wholesale inflation plunging to a historic low of (-)4.05 per cent on cheaper vegetable and fuel.
These numbers when looked at alongside figures of industrial performance make a good case for further cuts in the policy rate by RBI and we hope the central bank would continue moving in that direction, Ficci President Jyotsna Suri said. Asserting that promoting growth should take precedence at this juncture, Suri said at this point there is an imperative need to propel domestic demand on a sustainable basis that could lead to higher capacity utilisation and eventually more investments.
The WPI number follows retail inflation (CPI) data, which had slipped to a record low of 3.78 per cent in July. Data released earlier this week showed industrial production expanded at a four-month high rate of 3.8 per cent in June due to improvement in manufacturing activity. Drop in WPI, together with fall in the consumer price index (CPI) and the rise in industrial production presents a strong case for the RBI to consider an interest rate cut to push growth ahead of its scheduled policy review meeting,
Assocham Secretary General D S Rawat said. He said it remains to be seen as to how monsoon develops and what shall be its future impact on food prices as an uneven rainfall in some regions of the country may hit crops and could pile pressure on food inflation in the future. As such the government needs to outline its preparedness and plan of action to deal with any contingency arising out of such an event, Rawat said.
RBI Governor Raghuram Rajan after the monetary policy announcement on August 4 had said the central bank may cut interest rate even out of the policy cycle depending on how macroeconomic indicators play out. RBI mostly tracks the consumer price inflation for its policy decisions.

INFLATION AND WHOLESALE PRICE INDEX