Wholesale price inflation hit a record low of -4.05% in July, as the steepest fall in food inflation in at least a decade further deepened a broad-based slowdown in input prices, showed the official data released on Friday.
Coming on the back of a record fall in retail inflation to 3.78% in July from 5.4% in the previous month, the negative wholesale price inflation for nine consecutive months now further escalates pressure on the Reserve Bank of India to ease its monetary policy, just as industry intensified clamours for a rate cut even before the central bank’s next policy review meeting on September 29.
Terming the latest inflation print a “big positive,” finance minister Arun Jaitley said along with other data, it endorsed the notion of macro-economic stability. “The quantum and the geographical spread of monsoon rains have been good this year,” he said, indicating the government expects less risks to farm production from erratic weather. Chief economic adviser Arvind Subramanian said the latest data not just indicated a big fall in inflation but also, when seen together with the growth in bank deposits and a drop in gold imports (in June), pointed at an (encouraging) structural shift in the underlying process of inflation.
Food inflation — for long an irritant in both the price gauges — touched -1.16% in July, its meanest at least since April 2005 when the current wholesale price index (WPI) series was launched and compared with 2.88% in June this year. The WPI food inflation turned negative only twice in the current series, the first instance being in January 2012 when it had hit -0.67%.
The latest fall suggests the price rise witnessed in some pockets of the country, especially in June when the weather office predicted a deficient monsoon season in 2015, subsided in July. Favourable bases (food inflation had risen 8.46% and the headline WPI 5.41% in July last year) also helped keep a lid on inflationary pressure. The spike in inflation in pulses to 35.75% in July from 33.67% in June was offset by a plunge in prices of vegetables and potato by 24.52% and 49.27%, respectively, for the month.
Fuel and power inflation touched -12.81% in July, compared with -10.03% in the previous month. Interestingly, the sub-index for crude oil rose slightly to 221.7 (initial) for July from 218.5 (revised) for May, at odds with the decline in the average price of the Indian basket of crude oil to R3,580 per barrel from R4,070 during the period, said Aditi Nayar, senior economist at ICRA. “We expect subsequently-released data to include a downward revision of the sub-index for crude oil for July, resulting in a sharper pace of disinflation for the headline WPI index as compared to the initial -4.05%,” she added.
The government has revised the WPI inflation for May to -2.20% from -2.36% reported earlier. The WPI print for August would be crucial once the favourable base effect starts to diminish.
Core WPI inflation (price rise in non-food manufactured items) crashed further to -1.4% in July, compared with -0.9% in the previous month. WPI inflation in manufactured products eased more to -1.47% in July from -0.77% a month before. The minerals sub-index crashed 26.3% year-on-year, compared with 28.4% in the previous month, registering disinflation for 12 months in a row.
The further drop in the core WPI suggests a rebound in demand is still elusive, although low commodity prices globally have also contributed to it. The core WPI had hit the negative territory in March after a gap of 65 months, but analysts believe the central bank may not read too much into it due to its stated policy focus on the CPI.
While trimming the benchmark lending rate by 25 bps in June, the third time in 2015, RBI governor Raghuram Rajan had termed the monsoon as the “biggest uncertainty” facing the economy and raised the bank’s retail inflation target by 20 bps to 6% by January 2016. Earlier this month, Rajan kept the benchmark lending rate unchanged at 7.25%, even though the government and industry have been urging for lowering the borrowing costs.
CII director general Chandrajit Banerjee said the distinct downturn in both retail and wholesale inflation makes a strong case for the RBI to reduce interest rates immediately, especially “as industrial production continues to show sluggish growth, capital goods production moved to the negative terrain in June and the recent devaluation of Chinese yuan could hurt our export competitiveness in a subdued global environment”. FICCI president Jyotsna Suri said. “With oil prices remaining range bound and commodity prices being subdued, the issue of imported inflation too is not much of concern now. Promoting growth should therefore take precedence at this juncture.”