April CPI inflation eases to 3%, March industrial output grows by 2.7% | business-news | Hindustan Times
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April CPI inflation eases to 3%, March industrial output grows by 2.7%

India’s wholesale prices rose 3.85% year-on-year in April, government data showed on Friday.

business Updated: May 14, 2017 15:41 IST
Raj Kumar Ray
WPI

India released a new series of wholesale inflation and industrial output data, revising the base year to 2011/12 from 2004/05.(Bhushan Koyande/HT File Photo)

Prices of pulses, potato and onion fell sharply, triggering both retail and wholesale inflation to fall sharply while the industrial growth picked up momentum in March, government data calculated in a new way showed on Friday.

With a forecast of normal monsoon this year and a record foodgrain production in 2016-17, analysts say inflation be may moderate this year, leaving scope for the Reserve Bank of India to lower interest rates.

On Friday, the government came up with a new data series that includes more items and shifted the base year to 2011-12 from 2004-05, to help policymakers get a more accurate picture of output and price trend.

While the consumer price inflation (CPI) eased to 2.99% in April from 3.89% in March, the WPI inflation fell sharply to 3.85% in April from 5.3%.

“With the new data series, the difference between the WPI and CPI will narrow,” said DK Joshi, chief economist of Crisil.

Retail food inflation was at 0.61% in April as compared with 2.01% in the previous month.

“The new series excludes indirect taxes when reckoning prices and hence shows a lower increase in prices through the series in general with a maximum differential of 1.5-1.6% with the old series. We do expect inflation to remain in the 3-4% range for the next couple of months before the base effect wears off,” said Madan Sabnavis, chief economist of Care Ratings.

The new WPI data showed food inflation eased to 1.16% in April from 3.82% in March, as pulses prices fell 13.6% from a year ago, while potato was down 41% and onion 12.5%.

Higher prices of petrol and diesel pushed up WPI fuel index by 18.5%.

A pick-up in demand also pushed up manufacturing product prices by 2.66%.

The new series of WPI excludes indirect taxes, which negates the impact of fiscal policy on prices. “This is in consonance with international practices and will make the new WPI conceptually closer to producer price index,” an official release said.

The government also compiled a new WPI Food Index to capture the rate of inflation in food items.

Moreover, seasonality of fruit and vegetable prices have been updated to account for more months as these are now available for longer duration.

The government also moved to a new geometric mean (GM) following international best practice as is currently used for compilation of All India CPI.

The new data series will also help the overall inflation to soften as it includes many new products whose prices have fallen.

The RBI will now have the option to monitor both the WPI and CPI inflation closely following the update in data.

“RBI would continue to monitor the inflation situation and could initiate a rate cut after September’17 if the inflationary impact, if any, of GST and pay hike is within the acceptable limits of RBI. We expect only a 25 bps cut in the second half of 2017-18,” Sabnavis said.

The central bank left policy lending rate (repo) unchanged and hiked borrowing rates (reverse repo) at the last policy review on April 7. Between January 2015 and December 2016, RBI lowered policy rates by 175 basis points as inflation was sliding.

A pick up in new currency in circulation helped revive consumer demand after a bout of severe cash crunch during the demonetisation drive of November-December of 2016.

India’s economic growth is estimated to have slowed to 7.1% in 2016-17, from 7.9% in 2015-16, due to the demonetisation drive.