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Inflation declines 1.74%, the most in three decades

Inflation declines 1.74%, the most in three decades
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First Published: Thu, Aug 13 2009. 11 37 PM IST

Graphics by Paras Jain / Mint
Graphics by Paras Jain / Mint
Updated: Thu, Aug 13 2009. 11 37 PM IST
New Delhi: Wholesale prices fell the most in three decades, giving the central bank more time to keep interest rates at a record low before weak monsoon rains reduce harvests and stoke inflation.
Graphics by Paras Jain / Mint
The benchmark Wholesale Price Index (WPI) declined 1.74% in the week to 1 August from a year earlier after falling 1.58% in the previous week, the government said on Thursday. That was the biggest retreat since June 1978, when prices dropped 1.9%, according to central bank monthly data.
Prime Minister Manmohan Singh had on 8 August said below-average monsoon rains are likely to reduce crop output and may have an inflationary impact in the coming months. India relies on the seasonal monsoon as half the nation’s arable land isn’t irrigated.
Food inflation, which is already under pressure, will face further pressure due to poor rainfall, said Dharmakirti Joshi, an economist at Mumbai-based Crisil Ltd, the local unit of Standard and Poor’s. An erratic monsoon so far and a severe deficiency in the first week of August have raised the specter of drought in India.
The India Meteorological Department had on 10 August lowered its monsoon forecast for a second time this season, saying showers in the June-September season will be 13% below average, compared with a 7% shortfall estimated in June.
Poor rainfall may curb farm output and erode the purchasing power of 742 million Indians who live in the countryside, hurting the government’s efforts to revive growth in order to create jobs and cut poverty. State governments have declared drought in 167 of India’s 626 districts, the farm ministry said on Wednesday. Area under rice cultivation has declined 20% to 22.82 million ha, according to the farm ministry.
Wholesale prices are falling because of a high base last year and inflation will accelerate to as much as 6.5% by March, said Tushar Poddar, an economist at Goldman Sachs in Mumbai.
Inflation has slowed from a 16-year high of 12.91% in August 2008 as oil prices fell from an unprecedented $147.27 (around Rs7,083) a barrel in the previous month.
Food inflation may accelerate at a faster pace from October onwards, adding to already high consumer price inflation, Joshi of Crisil said.
India has four consumer price indices and uses WPI as the benchmark as the other inflation measures don’t capture the aggregate price picture.
Consumer prices paid by farm workers jumped 11.52% in June from a year earlier after gaining 10.21% in May. Prices paid by rural workers rose 11.26% in June from 10.21% in the previous month. Consumer prices paid by industrial workers rose 9.26% in June from a year earlier, according to the latest government data.
India’s WPI published on Thursday may be revised in two months, after the government receives additional data. The commerce ministry on Thursday revised the rate for the week ended 6 June to a fall of 1.01% from a decline of 1.61%.
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First Published: Thu, Aug 13 2009. 11 37 PM IST