Wholesale price inflation touched -4.54% year-on-year in September — having clawed back from the record low of -4.95% in August but still remained in the negative zone for 11 months in a row, showed the official data released on Wednesday.
The data indicate the impact of a broad-based fall in global commodity prices is yet to wane meaningfully and producers’ pricing power still remains dented.
Fuel and power inflation dropped even further to -17.71% in September, compared with -16.50% in the previous month, reflecting the slide in global crude oil prices. Food inflation, however, slipped back to the positive territory after two months, touching 0.69% in September from -1.13% in the previous month, thanks to a spurt of 113.7% in onion and 38.6% in pulses inflation. However, negative inflation in potato and the vegetable segments (-57.34% and -9.45%, respectively) kept a lid on the overall food inflation. Core inflation–price rise in non-food manufacturing products–turned negative for seven successive months, hitting -1.9% in September, the same level as in August.
The latest data came on the back of retail inflation inching up to 4.41% in September–compared with 3.74% in the previous month but well below the Reserve Bank Of India’s (RBI’s) forecast rate of 5.8% for January despite the diminishing base advantage–and industrial production growth scaling a 34-month high of 6.4% in August, in the strongest sign yet in this fiscal of a recovery in economic output.
Given that RBI governor Raghuram Rajan “frontloaded” the rate cut by trimming the benchmark lending rate by a higher-than-expected 50 basis points late last month, many analysts don’t see any further easing by the central bank this fiscal, even though they reckon retail inflation would undershoot the RBI target for January.
The July WPI data has been revised marginally to -4% from -4.05% announced earlier.
Although the impact of favourable bases for both the wholesale and consumer price inflation gauges has started to diminish from September, analysts don’t see any sharp upward spiral in price pressure in the coming months. This is because global commodity prices continue to remain subdued and the on-going kharif harvest is expected to put a check on pulse and onion prices in the coming months, even though some risks to food inflation from a deficient monsoon (14% drop in shower from the benchmark level in 2015) still persist. The government targets a 5% rise in Rabi grain harvest in 2015-16 from a year before, although wide-scale dry-spells in the Kharif season and low water reservoir levels, especially in Maharashtra, pose a threat to achieving the target.
“WPI inflation will remain sub-zero in the third quarter before rising to 3-4% by March 2016 as the base effect dissipates for primary articles and fuels. While we expect core inflation to revert to the positive zone in the last quarter in the current fiscal, it is likely to remain subdued and print below headline WPI inflation in the fourth quarter of this fiscal,” said Aditi Nayar, senior economist at ICRA.