Inflation falls to 3-year low; will EMIs come down?

WPI-based inflation rate fell to 4.89% — the lowest in more than three years — triggering demand for an interest rate cut by RBI amid expectations that a normal monsoon and bountiful harvest will further cool prices. HT reports. Food for thought

India’s wholesale prices-based inflation rate fell to 4.89% April — the lowest in more than three years — triggering demand for an interest rate cut by the Reserve Bank of India (RBI) amid expectations that a normal monsoon and bountiful harvest will further cool prices.

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The latest data released on Tuesday will likely bring cheer for the United Progressive Alliance government struggling to boost its political stock amid a string of corruption allegations.

Whole price index (WPI)-based inflation rate — India's most watched price index — stood at 5.96% in March and 7.50% in the same month of the previous year.

Food inflation, which carries a 14.34% weight in the overall WPI basket, fell to 6.08% in April from 8.73% in February, pulled down by sharply lower vegetable prices.

The sharp decline in WPI inflation, the lowest since November 2009 when it stood at 4.78%, comes on the heels of a moderation in April consumer-price index (CPI) inflation — a more realistic index as it captures shop-end prices — announced on Monday, to a four month low of 9.39%.

The lower inflation numbers have rachetted up the demand for a cut in interest rates. Earlier this month, the RBI had cut its key lending rate — the repo rate — by 0.25 percentage points to 7.25% but had noted that there was limited room for further rate cuts.

“I think we need to look at statement made by the RBI governor during the last policy review where he had stated that the RBI is closely monitoring inflation figures,” said Arvind Mayaram, secretary, Department of Economic Affairs.

“So, we do believe that RBI would look at this figure (inflation coming below 5% in April),” he added.