The wholesale prices fell for a 13th straight month in November, but a sharp pickup in food prices and a pending wage hike for millions of government employees are likely to keep policymakers worried about potential inflationary risks.
The wholesale price index (WPI) declined an annual 1.99% last month, driven down by tumbling oil prices, government data showed on Monday. A Reuters poll expected a fall of 2.80%.
Wholesale food prices in November gained 5.20% year-on-year, compared with a provisional 2.44% rise in October.
At 5:30 pm, November figures for the consumer price index (CPI), which the central bank closely tracks for setting monetary policy, will be released.
Consumer prices are tipped to have gained for the fourth consecutive month in November, rising an annual 5.4% on the back of a jump in food costs.
Higher food prices and anticipated higher government salaries are widely expected to stoke price pressures, making it tougher for the central bank to keep retail inflation around 5 percent by March 2017.
“The Reserve Bank of India (RBI) faces a tough challenge in meeting its medium-term CPI inflation target, suggesting that the rate-cutting cycle has now come to an end,” said Shilan Shah, an economist with Capital Economics.
After easing monetary policy aggressively this year, the RBI kept the key repo rate on hold at 6.75% earlier this month.
While a crash in global commodity prices has tamped down prices in India, the central bank remains worried about elevated household inflationary expectations.
It is also expected to contend with a potentially weakening rupee should outflows from emerging markets gather pace if, as widely anticipated, the Federal Reserve hikes US interest rates this week.
As a result, very few expect aggressive rate cuts in 2016.