Helped by slipping oil prices, inflation continued to fall in August but the drop masked higher rates for common household items like onions and pulses.
The wholesale price index (WPI) fell for the tenth straight month to 4.95% compared with a 4.05% decline in July. Retail prices, too, moderated to 3.66% from 3.69%, official data released on Monday showed, raising hopes of an interest rate cut.
The Reserve Bank of India holds its next monetary policy review on September 29.
“Both categories of inflation indicate that inflation continues to moderate and seems to be under control,” finance minister Arun Jaitley said.
Cheaper fuel may have brought down inflation but several items in the food basket, restaurant bills, education and housing remain pricey, keeping the cost of living high in most regions of the country.
Onions and pulses continue to weigh on household budgets. Wholesale onion prices grew 65.29% in August compared with last year, while pulses were costlier by 36.40% during the month. Onions are retailing at Rs 70 a kg, while a kilo of Arhar dal is selling for more Rs 130.
“Prepared meals, snacks and sweets” — a component in the consumer price index (CPI) that indicates the cost of eating out — rose 7.31% in August, probably mirroring costlier rentals as well as higher service tax rates.
“The RBI needs to reduce interest rates sharply to drive a recovery in demand. CII expects the RBI to reduce interest rates by 50 basis points (0.50 percentage points) in the forthcoming policy with statements supporting further easing in the near future,” said Chandrajit Banerjee, director general, Confederation of Indian Industry (CII).
Industry leaders had expressed similar sentiments during a meeting called by Prime Minister Narendra Modi on September 8 to discuss the global economic scenario. Bankers and economists were also in attendance as the Prime Minister urged industrialists to take risks and invest in India.
CPI-based retail inflation — a metric to measure changes in shop-end prices — acts as the central bank’s guide on interest rate decisions. The two indices assign different weights to different items. In CPI, the weight of food and beverages is 46%, while it is 14.22% in WPI. Simply put, a rise in the price of vegetables will be reflected differently in WPI and CPI.
“Today’s CPI data lends support to the expectation of a rate cut in the RBI’s upcoming policy review,” said Aditi Nayar, senior economist, ICRA, a credit rating and research firm.