Wholesale price inflation turned negative for the fourth straight month, dropping to -2.06% in February, its lowest at least since April 2005 when the current series was introduced, mainly as a massive drop in global crude oil prices drove down fuel inflation sharply, showed the official data released on Monday.
Analysts remained cautious in reading too much into the likely impact of the wholesale price index’s (WPI’s) massive fall in February on RBI’s monetary policy review meeting in April, although some suggested it might go for a third round of rate cut by June. The next rate cut would depend more on monsoon forecasts rather than the drop in wholesale price inflation, given that food inflation has remained at elevated levels in both WPI and the consumer price index (7.74% and 6.8%, respectively), they added.
Core inflation dropped to a 63-month low of 0.1% in February, maintaining a consistent fall since July last year. While it reflects that consumption is yet to pick up meaningfully at the ground level and also mirrors recent weak growth in manufacturing in the index of industrial production as well as a 15% drop in exports in February, analysts believe the sharp plunge in global commodity prices, too, contributed a great deal to it.
December WPI inflation has been revised to -0.5% from 0.11% announced earlier, much like the way the November figure was revised down to -0.17% from 0%. WPI inflation in manufactured products slowed to 0.33% in February, compared with 1.05% in the previous month.
Analysts, however, have ruled out a deflation scenario, as the latest drop in headline WPI was stoked by the sharpest decline in fuel inflation (-14.72%) in the current series, despite marginal hike in domestic petrol and diesel prices, as global brent crude prices were hovering around six-year lows in February.
The gap between retail and wholesale inflation widened for the fourth month, thanks to the much higher weight of food items — prices of which have remained elevated in both indices — and lower weight of fuel items in CPI than WPI. The consumer price index rose 5.37% in February.
Indicating a low likelihood of rate cut in April, Icra senior economist Aditi Nayar said elevated food inflation remains a concern. “While food prices underwent an m-o-m correction in February led by vegetables, this trend may reverse in the ongoing month, following the crop damage caused by unseasonal rainfall as well as rise in retail prices of diesel and petrol in early March (Rs 3.09 a litre and Rs 3.18 a litre, respectively).
Nevertheless, crude and retail fuel prices are considerably lower than the year-ago period, which would limit the uptick in y-o-y WPI inflation in March 2015.”