Still in negative, India's inflation rate dips to historic low

5 Dariya News

New Delhi 14-Aug-2015

India's annual wholesale inflation for July fell for the ninth straight month to a historic low of (-)4.05 percent from (-)2.4 percent for the month before, led largely by a 12.8 percent decline in the index for fuels, official data released on Friday showed.The annual inflation rate, based on the official wholesale price index (WPI), was ruling at 5.41 percent in July 2014.On a month-on-month basis the annual rate of inflation has been in the negative territory since October last year. For the last six months the WPI has been (-)2.17 percent in February to (-)2.33 percent in March to (-)2.43 percent in April, (-)2.20 percent in May, (-)2.40 percent in June and (-)4.05 percent in July.Data furnished by the Ministry of Commerce and Industry further showed that among the three major sub-indices of the WPI, the inflation rate for primary articles was (-)3.66 percent, (-)12.81 percent for fuels and (-)1.47 percent for manufactured products.The data attributed the slowdown in WPI based inflation to slower increase in food and fuel prices.Food inflation in the month under review eased to (-)1.16 percent from an increase of 2.88 percent recorded in June and 8.47 percent in the corresponding month of last year.Prices of major food articles like potatoes, vegetables, fruits, rice, cereals and onions fell.According to the WPI data, potatoes prices decelerated by 49.27 percent, vegetables prices contracted by 24.52 percent, fruits inflation stood at (-)4.48 percent, rice cost fell by 2.86 percent, cereals were cheaper by 1.57 percent and onions became dearer by (-)0.49 percent.

However, prices of protein rich food items like egg, fish, meat, milk, milk based products and pulses rose in the month under review.The prices of pulses swelled by 35.75 percent, followed by milk and milk based products which appreciated by 5.30 percent and egg, fish and meat became costly by 2.52 percent.The data also reflected the lowering of prices in the fuels sub-index during the month in review. The rates of inflation were (-)13.33 percent for petrol, (-)16.75 percent for high-speed diesel and (-)5.02 percent for cooking gas.The wholesale decline comes on the back of retail inflation falling to 3.78 percent in July.The current WPI coupled with consumer price index (CPI) have pointed at a gradual reining in of prices. This will boost India Inc.'s hope for a rate cut from the apex bank."The figures from both the CPI and the WPI have come in better-than-expected and the markets and India Inc were waiting for this moment to press their case for a rate cut with the Reserve Bank of India (RBI)," Devendra Nevgi, chief executive of ZyFin Advisors told IANS."Though the RBI takes into account the CPI for deciding upon the rate decisions, on a multi-indicator level WPI data will add weight to the case for a rate cut."The RBI has set a target for CPI inflation at 6 percent by January 2016.

The current WPI data also helped the Indian equity markets make healthy gains on Friday. The barometer sensitive index (Sensex) of the Bombay Stock Exchange (BSE) gained 518 points in the day's trade.India Inc. said that the distinct downturn in both retail, wholesale and soft inflationary scenario makes a strong case for RBI to resume its accomodative policy stance."The distinct downturn makes a strong case for RBI TO reduce interest rates even before the next monetary policy announcement especially as industrial production continues to show sluggish growth,"Chandrajit Banerjee, director general, Confederation of Indian Industry (CII)Another major business body the Federation of Indian Chambers of Commerce and Industry (Ficci) said that the government should focus at promoting growth as food, oil and commodity prices have subdued.

"At this point there is an imperative need to propel domestic demand on a sustainable basis that could lead to higher capacity utilization and eventually more investments", said Dr. Jyotsna Suri, President, Ficci. The Associated Chambers of Commerce and Industry of India (Assocham) suggested that the government should pay more attention on the supply-side management of protein based food articles whose prices have appreciated."Assocham is also worried about the continuous fall in the price of manufactured products as this could hurt the industry's pricing power thereby eroding profitability," said D.S. Rawat, secretary general, Assocham.