Sept inflation hits 5-year low; India Inc calls for a rate cut

Written by ENS Economic Bureau | New Delhi | Updated: Oct 15 2014, 16:33pm hrs
InflationHeadline inflation declined to a five-year low of 2.38 per cent in September. (AP)
Headline inflation declined to a five-year low of 2.38 per cent in September, as vegetable and fruit prices eased by over 13 per cent during the month.

This is the lowest since October 2009 when it stood at 2.33 per cent. On Monday, retail inflation, which the Reserve Bank of India tracks to set policy lending rates, dropped sharply to 6.46 per cent in September, the lowest since the data series started in January 2012.

The developments have increased the clamour among corporates for a rate cut to push investment and create demand. However, with the expected interest rate hike by the US Federal Reserve sometime next year and the likelihood of ongoing geopolitical tensions driving up crude prices, it is unlikely that the central bank will yield in to the demands.

Exuding confidence of achieving a low and stable inflation rate soon, finance minister Arun Jaitley said, It is heartening to note that we have been able to bring food inflation under control We are committed to continuing reforms in food markets that will improve supply responses and keep inflation low and stable. At the same time, fiscal consolidation and a new monetary policy framework will help bring down inflationary expectations.

Seizing the opportunity, industry lobbies, including Ficci and CII, demanded a rate cut, arguing that the moderation in global commodity prices along with decline in fuel prices will help in reining in inflation.

According to the wholesale price index (WPI) data released by the commerce ministry on Tuesday, food inflation fell to a nearly 33-month low of 3.52 per cent with onions becoming cheaper by over 11 per cent during the month.

However, among vegetables, price of potatoes rose 11.88 per cent during the month. The index for non-food articles group declined by 2 per cent. Further, falling global crude oil prices pulled fuel inflation down to 1.33 per cent in September from 4.54 per cent in August.

During the April-September period, WPI inflation stood at 2.61 per cent compared to a build up rate of 6.23 per cent in the corresponding period of the previous fiscal.

Saugata Bhattacharya, chief economist, Axis Bank, said that while WPI will remain sustainable, CPI is expected to climb back up. Drivers of inflation like increasing minimum support price, global commodity prices and monsoon are very benign, he said.

However, he added, the RBI will still hold the rate hike, especially in view of the expected US Federal Reserve rate hike. Among manufactured products, the index for food products group rose by 0.2 per cent due to higher prices of powdered milk, tea leaf, ghee and groundnut oil.