Wholesale price inflation decelerated at its fastest pace in five years at 1.77% in October — compared with 2.38% in the previous month — as the pace of price rise in food and fuel products marked a slowdown, aided by favourable bases, showed official data released on Friday. Inflation gauged by the wholesale price index stood at 1.4% in September 2009 and has since been higher than the latest number.
With the consumer price index (CPI) having dropped to 5.52% in October — its lowest since inception in January 2012 — the latest decline in WPI adds to the industry’s clamour for “accommodative monetary policy” to spur growth, but given the central bank’s insistence on breaking the back of the inflation genie, it is still hazardous to wager on a rate cut this fiscal.
Finance minister Arun Jaitley said: “With crude prices down, this trend of lower food prices will continue.” He, however, sought to temper expectations of a significant fall in oil prices, going forward, adding that the country shouldn’t be “overtly optimistic at this time”.
He said a 2.5% growth in industrial production in September was too modest to be happy about, even though it was a three-month high. “Steps that we are taking will take a little time before it shows impact,” the minister said.
“Even if crude oil prices fall further, the government may choose to increase the excise duty levied on petrol and diesel, in line with the recent increase in duties by R1.5/litre on these fuels, keeping prices sticky at current levels,” said Aditi Nayar, senior economist at ICRA.
“The decline in October WPI was led by falling global commodity prices, a favourable base effect and diesel price deregulation, and is not indicative of a sharp correction in domestic demand conditions. In particular, the month-on-month rise in index levels for a majority of the sub-groups within non-food manufactured products in October indicates that pricing power has not completely eroded,” Nayar added. The government has also revised up August WPI inflation to 3.85% from 3.74% reported earlier.
Although a conducive base effect may fade away from November, analysts reckon easing prices of commodities globally, especially brent crude oil, a rebound in monsoon rains after initial dry-spells, modest hike in the minimum support prices of summer as well as winter crops and good grain stocks in official granaries have added to the optimism of policy-makers about slowing inflation rates. Since food and fuel items make up for around 60% weightage in the CPI basket, they don’t see any sharp rise in both inflation gauges in the rest of the year.
Importantly, core WPI inflation, price rise in non-food manufactured items, eased to 2.5% last month, the lowest since September 2013 and compared with 2.8% this September. Core CPI, too, remained unchanged last month at record low of 5.9% hit in September.
WPI food inflation moderated to an almost three year low of 2.70% last month on a 19.61% contraction in vegetable prices. Inflation in fuel products, too, dropped to 0.43% in October, lowest in around five years and compared with 1.33% in the previous month. Manufactured product inflation, too, eased to 2.43% last month, as against 2.84% in September.
Analysts said easing inflation numbers may prompt the RBI to reconsider targets set by the Urijit Patel panel set for January 2015 and 2016.