WPI falls below 1%, aided by disinflation in food and minerals
Mumbai/New Delhi: Strengthening the case for an interest rate cut by the Reserve Bank of India (RBI), wholesale price inflation decelerated to the slowest pace in 11 months in June, led by a decline in food prices.
Wholesale Price Index (WPI)-based inflation fell to 0.9% in the month from 2.17% in May, data released on Friday showed. The data, coming on top of a decline in consumer price inflation to a record low in June and a decline in factory output, buttresses the case for a rate cut when RBI unveils its next monetary policy on 2 August.
Data released on Wednesday showed that retail inflation eased to 1.54% in June from 2.18% in May and factory output growth slowed to 1.7% in May from 3.1% in the previous month. Chief economic advisor Arvind Subramanian said in an implicit message to RBI that the data was “something that, I am sure, all policymakers will reflect upon very, very carefully”.
The central bank had, in its last monetary policy review on 7 June, kept key interest rates unchanged. RBI has maintained that it will wait and watch if inflation maintains a declining trajectory.
“There is two-third probability of rate cut in August if (we) take both WPI and CPI numbers together.... (but) this is unlikely to spur investment demand due to weak corporate balance sheets, idle capacity and other factors,” said Devendra Kumar Pant, chief economist, India Ratings and Research Pvt. Ltd.
Food prices led the June decline in WPI. Food inflation contracted 3.47% in June, more than the 2.27% contraction a month back. Prices of potatoes fell the most, by 44%, compared with a 41% decline in the previous month.
“It is the same food items that were contributing to the decline, which are reflected in the low value of WPI for the month of June. But these are short-term in nature and will spike up in the coming month,” said Madan Sabnavis, chief economist at Care Ratings.
Core WPI inflation (excluding food and fuel prices) slowed to 2% in June from 2.1%.
According to Aditi Nayar, principal economist at rating company Icra Ltd, lower core inflation is not surprising, given that producers in many sectors would have refrained from hiking prices prior to the introduction of the goods and services tax (GST) on 1 July.
Inflation in minerals contracted 2.02% after accelerating 3.7% in May.
In May, the Department of Industrial Policy Production updated WPI to the new series with 2011-12 base year by assigning revised weights to the list of items. It also excluded excise duty while computing WPI to insulate it from changes in fiscal policy such as implementation of GST.
Since CPI includes the services component, which WPI doesn’t, it is expected that CPI will be above WPI in the coming months as well, also partly because of GST’s implementation.
- Donald Trump: ‘Crazy’ Joe Biden would go down crying if he assaulted me
- The many ways China can hit back at Donald Trump, from taxes to probes
- Vodafone-Idea announces leadership team, Kumar Mangalam Birla is non-executive chairman
- Delhi Budget 2018-19: AAP govt to take development to every house, says Arvind Kejriwal
- Farm loan waiver: Siddaramaiah calls Karnataka BJP spineless