Wholesale price inflation hit zero in November, its slowest level since July 2009, as fuel inflation dropped to a five-year low and the rate
of price rise in food items fell drastically due to favourable bases and declining global commodity prices, the official data released on Monday showed.
With retail inflation having hit a fresh low of 4.38% in November and industrial production at a three-year low in October, the latest wholesale price index (WPI) inflation data pile on the pressure on the Reserve Bank Of India (RBI) to effect the much-anticipated rate cut to boost the economy, at the bi-monthly policy review on February 3. Analysts say inflation will start inching up from now, as the favourable base withers off, but most agree that the CPI inflation, the RBI’s preferred gauge, will remain below the targetted level of 6% in March.
However, given the RBI has travelled a long and arduous path to combat inflation, braving majority opinion, it could still take the fight to the logical end of annihilating inflation genie’s destructive potential. The RBI, some analysts said, might choose to wait until the conducive base effect fades away substantially (WPI and CPI inflation started easing from December 2013 onwards).
The central bank might also want to see how credibly the government stocks to its fiscal deficit reduction target in the coming Budget, given that governor Raghuram Rajan has consistently stressed the quality of fiscal consolidation. Analysts said while the inflation data for December will be key, the November figures at least serve to temper inflationary expectations in the coming months.
WPI food inflation moderated to just 0.63% last month on a 28.6% contraction in vegetable prices and primary article inflation hit -1%. Inflation in fuel products, too, remained in the negative territory, at -4.9% in November, the lowest since November 2009 and compared with 0.43% in October. Manufactured products inflation, too, moderated to 2.04% in November, compared with 2.43% in the previous month. There was a 0.26% decline in manufactured products inflation in November from the previous month, thanks primarily to the fall in prices of chemicals and basic metals.
Core WPI inflation, price rise in non-food manufactured items, further eased to 2.2% last month, the lowest since September 2013 and compared with 2.5% in October. Core CPI, too, hit a record low of 5.5% in November, dropping from 5.5% in the previous month.
Rajan said last week that disinflation in India “cannot be as steep as in an industrial economy because an emerging market is more fragile, and people’s buffers and safety nets are thinner” and stressed “ensuring moderate growth even while we disinflate”. “Going forward, we will discuss an appropriate timeline with the government in which the economy should move to the centre of the medium term inflation band of 2-6%,” he added. He had also highlighted the need for channelising domestic savings to investment and said the economy must rely more on internal demand, rather than on exports.
Analysts argue that a 35% drop in consumer durables production in October, the worst performance by the segment since the 2004-05 base series of the index of industrial production (IIP) came into effect, and continued tepidity in credit growth suggest private demand needs an urgent push from the monetary authorities as well.
The persistent double-digit inflation in fruit this fiscal and the possibility of some kind of a supply-induced shock in the coming months due to a projected 5% drop in Kharif production pose some risks to food inflation in the coming months, said Anis Chakravarty, senior director at Deloitte India. ICRA’s Aditi Nayar, too, said the month-on-month rise in protein products such as pulses and non-vegetarian items in November may continue in the near term and remain the chief risk for the food inflation trajectory.
However, the analysts don’t see any sharp rise in both inflation gauges in the rest of the fiscal. This is because even if the base advantage starts to diminish, easing prices of commodities globally, especially of brent crude oil, modest hike in the minimum support prices of summer as well as winter crops and good grain stocks in official granaries would have benign impact on inflation. Nayar said although food inflation is expected to print at elevated levels, overall WPI inflation may remain below 1.5% in the remainder of 2014-15.
International brent cude futures have dropped to a fresh five-year low of $60.28 a barrel before erasing some losses, and prices of several farm items, including grains, have also declined.