Wholesale prices of potato, petrol, and LPG fell by 21.3 per cent, 5.6 per cent and 27.9 per cent respectively, driving the wholesale prices index inflation in India to remain at a 27-month low of 1.08 percent on-year in August 2019, the same pace as in the previous month.
Wholesale prices of potato, petrol, and LPG fell by 21.3 per cent, 5.6 per cent and 27.9 per cent respectively, driving the wholesale prices index inflation in India to remain at a 27-month low of 1.08 percent on-year in August 2019, the same pace as in the previous month. The benign inflation rate is mainly driven by a fall in the cost of fuel, but food prices rose faster. With a sharp increase in food inflation, the WPI stood slightly higher than expected. 15 sub-sectors recorded ease in inflation and as many as nine of the categories recorded disinflation over the previous year. “With pricing power of producers unlikely to strengthen and commodities ex-crude oil likely to remain sluggish in the immediate term, the core-WPI inflation may remain sub-zero in the rest of this calendar year,” according to ICRA.
Meanwhile, RBI has already cut the interest rate four times so far this year and the low inflation rate has kept the possibility of further rate cuts alive. “The disinflation in core-WPI in August 2019 has further reinforced our expectations of a rate cut in October 2019 policy review. In our view, the assessed space for further accommodation should be front loaded. Nevertheless, the efficacy of incremental rate cuts in rapidly instigating a turnaround in economic growth remains uncertain,” said Aditi Nayar, Principal Economist, ICRA.
However, unlike wholesale prices, the retail prices of items such as household goods, fuel, food, etc, have touched a 10-month high in August. CPI inflation rate stood at 3.21 per cent in the month, which was 3.15 per cent in July 2019. Despite the increase, the inflation rate is still below the RBI’s target of 4 per cent. The retail inflation mainly surged due to the price rise in food items. Food inflation (CFPI) surged to 2.99 per cent in August from 2.36 per cent in July.