New Delhi: The country’s wholesale prices declined for a second straight week as demand slowed in an economy growing at the weakest pace in seven years.
The benchmark Wholesale Price Index (WPI) fell 1.14% in the week to 13 June from a year earlier after tumbling 1.61% in the preceding week, the government said on Thursday. The previous week’s drop was the biggest since December 1978, according to central bank data.
“Falling wholesale prices are only a statistical feature and don’t mean India is suffering from deflation,” central bank governor D. Subbarao had said on 20 June. Inflation may accelerate if insufficient monsoonal rainfall this year reduces farm output and pushes up prices.
“The production of key crops may take a serious hit if the dry spell continues into July,” said Dharmakirti Joshi, an economist at Mumbai-based Crisil Ltd, the local unit of Standard and Poor’s. “If rains are bad in July and August as well, then we should be prepared to see a spike in inflation.”
The benchmark Wholesale Price Index (WPI) fell 1.14% in the week to 13 June from a year earlier after tumbling 1.61% in the preceding week. Ahmed Raza Khan / Mint
Monsoon rainfall, the main source of irrigation for the country’s 235 million farmers, may be below normal this year, minister of science and technology Prithviraj Chavan said on Wednesday. The government scaled down its forecast due to the El Nino weather pattern after predicting near-normal rains in April, he said.
India relies on monsoon rains to produce food for its 1.2 billion people, as more than half of the nation’s arable land isn’t irrigated. Cost gains for some food items included in the WPI are significantly high, Subbarao said.
The Reserve Bank of India will review its inflation target of 4% by March when it holds its next monetary policy meeting in the last week of July, taking into account the impact of rising oil and commodity prices, Subbarao said.
Inflation has eased from a 16-year high of 12.91% in August last year as oil prices fell from an unprecedented $147.27 a barrel in July. Still, global crude prices have gained more than 50% this year and reached a seven-month high of $73.23 on 11 June, rekindling inflation concerns.
Inflation in India is likely to accelerate to between 6% and 8% by March and that may prompt the central bank to start raising interest rates in early 2010, according to economists including Robert Prior-Wandesforde of HSBC Holdings Plc. and Tushar Poddar from Goldman Sachs.
Consumer prices paid by farm and rural workers jumped 10.21% in May from a year earlier, after rising 9.09% in April. Consumer prices paid by industrial workers rose 8.7% in April from a year earlier, after gaining 8.3% the previous month, according to government data.
The WPI published on Thursday may be revised in two months, after the government receives additional price data.
The commerce ministry on Thursday revised the rate for the week ended 18 April to 1.62% from 0.57%.