Notwithstanding deflation in wholesale prices, food inflation remains “a concern” and could rise further, says a Dun & Bradstreet report.
According to the global research firm, comfort from the decline in fuel inflation may soon start to abate following the rise in domestic petrol and diesel prices.
“The already elevated food prices could rise further in the event of unfavorable rabi harvest, thereby exerting pressure on overall inflation,” D&B said.
It expects the WPI inflation to be in the range of (-)0.4 per cent to (-)0.2 per cent in February 2015.
Wholesale prices fell the most in five-and-a-half years in January as decline in oil and some food items resulted in a negative inflation or deflation of 0.39 per cent for the month.
According to D&B, WPI Inflation is likely to remain in the negative zone led by weak commodity prices, subdued demand and continued fall in the global crude oil prices.
“The weak global economy coupled with deflation witnessed in major economies is expected to have some impact on the performance of the domestic economy, the extent of which though cannot be deciphered so easily,” D&B India Senior Economist Arun Singh said.
It was the second time in three months that the wholesale price index entered the negative territory. The government had also revised downwards the inflation number for November to minus 0.17 per cent, from zero earlier.
The last time the inflation had touched this low level was in June 2009 when it was at (-)0.4 per cent.
RBI Governor Raghuram Rajan on January 15 cut interest rates ahead of the scheduled monetary policy review. It is expected that he might announce another cut after the Budget in the wake of significant improvement in the inflation situation. The next review is due on April 7.