WPI inflation is expected to decline further to about (-)3 per cent in May despite concerns over weak monsoon and strengthening crude prices, says an SBI research report.
Deflationary trend continued for the sixth month in a row with inflation dropping to a new low of (-)2.65 per cent in April, mainly on account of decline in prices of fuel and manufactured items even as food prices increased.
According to a SBI research note, concerns of unseasonal rains, weak monsoon, strengthening crude prices, rupee depreciation and MSP increases impacting inflation trajectory may be unfounded and unsubstantiated.
“While weak monsoon may not impact food inflation in a year of bulging stocks, crude prices increase as well as rupee depreciation may not materially impact wholesale prices as also retail prices,” SBI said in a research note.
According to the report, WPI and CPI next month (May) will trend even lower (WPI close to negative 3 per cent, while CPI at close to 4.5 per cent or so).
Inflation, as measured on the Wholesale Price Index (WPI), has been in the negative zone since November 2014. In April last year, it was 5.55 per cent.
On rates, it said that the RBI is likely to go for a 25 bps cut sooner than later and given the current entrenched disinflationary impetus, there is an outside chance of rates being cut before June 2.
The central bank has lowered its policy rate twice so far in 2015, but maintained a status quo in its last monetary policy review on April 7 on fears of unseasonal rains
impacting food prices.
The next review meeting is scheduled on June 2, although the previous two cuts have taken place outside the scheduled policy reviews.