India’s wholesale inflation dips to lowest in six months

India’s wholesale inflation dips to lowest in six months

inflation1_505_081414015954 olmsqkjjjdjdh_smallThe annual rate of wholesale price inflation (WPI) decelerated further to its lowest in six months at (-)2.65 percent for April from (-)2.33 percent for the month before, providing more room for the Reserve Bank of India (RBI) to ease its monetary policy stance.

The annual rate of inflation based on WPI was 5.5 percent in April 2014. According to official data, the country’s retail inflation based on the consumer prices index (CPI) was also on a downswing in April, declining by 40 basis points to 4.87 percent.

The WPI data released by the commerce and industry ministry said the decline was thanks mainly to a fall of 28.65 percent in the prices of minerals and 13.03 percent in that for fuels.

Under food articles, the price of potatoes was as much as 41.14 percent lower in April this year over the like month of the previous year. Similarly, the decline was 1.32 percent for vegetables and a marginal 0.04 percent in rice.

But onions were dearer by 29.97 percent, pulses by 15.38 percent, fruits by 14.22 percent and milk by 7.42 percent. As a result, the index for food articles gained 5.73 percent.

The easing of global crude oil prices also had a significant impact on prices of petroleum fuels, diesel contracting by 14.39 percent, petrol by 18.44 percent and cooking gas by 6.06 percent.

The index for manufactured products was also down 0.52 percent April over April.

The current data also kept India Inc’s hope of a rate in the next monetary policy review of the RBI scheduled for June 2, 2015 alive.

As per the industry body Confederation of Indian Industry (CII), the decline in WPI, which comes close on the heels of a drop in retail prices, is driven by a drop in food prices even while the prices of fuel and manufactured goods continue to be in the red.

“The benign inflation outlook, fuelled by soft commodity prices and the anti-inflationary policies of the government, should provide sufficient elbow room to the RBI to continue with growth inducing policy in its forthcoming monetary policy announcement,” said Chandrajit Banerjee, director general, CII.

Another leading industry body Federation of Indian Chambers of Commerce and Industry (Ficci), the moderation in price rise has been broad based and seen in major food articles, fuel as well as manufactured products.

“Slight upside risk does persist on account of unseasonal rains and possibility of below normal monsoons. We are sure that the state and central government agencies will make all efforts in balancing demand and supply and addressing structural bottlenecks to control rise in food prices due to any such exigencies,” said Jyotsna Suri, president, Ficci.

The Associated Chambers of Commerce and Industry of India (Assocham) said that though the fall in wholesale inflation might bring some cheer to the consumers, a constant decline in WPI figures also raises some concerns especially for the manufacturing sector.

“The manufacturing decline has also largely been contributed due to the contraction of sugar, edible oils, textile, leather and leather products and rubber and plastic products prices,” said Rana Kapoor, president, Assocham.

“The chamber would like to re-iterate that a long term sequential drop of inflation of manufacturing products could adversely impact their pricing power.”

Kapoor added that more emphasis should be laid upon supply management of some essential consumption commodities such as pulses and onions as their prices have shot up during the month.

Industry body PHD Chamber of Commerce and Industry urged the RBI to reduce the repo rate by at least 50 basis points in the forthcoming credit policy.

“Lower WPI inflation is also expected to rejuvenate demand in the economy with low and stable prices of the goods,” said Alok B.Shriram, president, PHD Chamber.

“At this juncture, it becomes inevitable that interest rates environment is also in sync with decreased inflation,” added Shriram.

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