Inflation up a tad, chorus for interest rate cut grows

  • HT Correspondent, Hindustan Times, New Delhi
  • Updated: Jan 15, 2015 00:00 IST

India’s wholesale inflation rate crept to 0.11% in December from 0% in November, data showed on Wednesday, but business leaders said the marginal rise should not deter the Reserve Bank of India (RBI) to lower borrowing rates to aid a revival.

Wholesale food inflation stood at 5.20% in December, a sharp jump over the previous month’s 0.63%, but still significantly lower that previous year’s 13.73%.

Experts said the fall in inflation in November was also partly because of the statistical phenomenon called the “base effect”, where a drop looks magnified because of higher prices the previous year, particularly in the case of onions, vegetables and fuel.

The wholesale price index (WPI), the most commonly tracked metric to gauge economy-wide price movements of goods, was 6.40% during November 2013.

Wholesale inflation has now decelerated for the seventh consecutive month this fiscal.

Fruits and milk continue to show high increase with inflation rates of 17.87% and 9.72% respectively, while pulses registered an increase of 5.9%

The fuel & power index has been another contributor to the low wholesale inflation in December, witnessing negative inflation of 7.8%.

This does not come as a surprise as global crude oil prices have moderated significantly from a year-ago levels. The significant decline in crude prices, which have touched $45 a barrel, explains the fall in domestic rates.

Analysts expect the central bank to start lowering rates from the next monetary policy review on February 3.

“There would be a tendency for food price inflation to move upwards in January and February but overall WPI inflation would still be within acceptable limits. Thus, we expectthe RBI to cut the policy repo rate by 0.25 percentage points in the next policy review,” said Madan Sabnavis, economist at CARE, a credit rating and research firm.

Industry leaders have been ratcheting up their demand for interest rate cuts to boost investments.

“To give a boost to the capital expenditure cycle, there is an urgent need for lowering of lending rates. Since the inflation is largely under control, we urge the RBI to ease the monetary policy stance,” said Jyotsna Suri, president of industry body Ficci.

Data released on Monday showed that retail inflation grew 5% in December from the previous month’s 4.4%, reversing a five-month downward trend, but strong industrial output figures at 3.8% in November held out hopes about an economy-wide revival.

Consumer price inflation — a measure of changes in shop-end prices — quickened in December despite lower petrol and diesel prices due to falling crude oil prices, indicating hardening of food and vegetable prices, driven by weather-induced supply disruptions.

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