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Inflation down in Feb, raises hope for interest rate cut

Driven by tumbling oil prices, India’s wholesale inflation falls for the sixth consecutive month

business Updated: Mar 14, 2016 20:22 IST
Wholesale inflation,Prices,Commerce and Industry ministry
The fall in India’s wholesale inflation is said to be driven by tumbling oil prices.(File photo)

Inflation eased in February aided by moderate growth in food prices, raising expectations that the Reserve Bank of India (RBI) will cut interest rates in its monetary policy review next month.

Low food inflation rates, however, could be short-lived as recent unseasonal rain and hailstorms flattened hundreds of acres of ripening wheat crop across Haryana, Punjab and Uttar Pradesh.

Consumer price index (CPI)-based retail inflation, a measure of changes in shop-end prices, grew at a slower 5.18% in February against 5.69% in January and the 5.37% in February 2015, data released on Monday showed.

Consumer food price inflation, a metric to gauge changes in household kitchen budgets, eased to 5.30% in February this year from 6.85% in January and 6.88% in February 2015.

Wholesale inflation also eased to (-)0.91% in February, marginally lower than the previous month’s (-)0.90%.

This was the 16th straight monthly decline, driven down by fresh supplies of seasonal vegetables that eased prices.

Wholesale food inflation, a marker for price movements in bulk food purchases for traders, grew 3.35% last month, lower than the previous month’s 6.02%.

Read: When finance ministers were on wrong side of price curve

The low inflation rate, however, could be masking rising household budgets over skyrocketing prices of pulses, the main source of protein for millions of Indians.

Wholesale prices of pulses shot up 38.84% in February from 44.91% in January. Prices of pulses are now at a five-year high in some parts of the country hit by storms last spring and a back-to-back drought last summer. Since India relies on imports to meet its entire domestic demand, any weather shock results in a big jump in prices. Rain over the past few days has raised the risk of a repeat phenomenon this year.

“While prices of pulses and certain vegetables have declined in the first half of March 2016, the recent spell of unseasonably heavy rainfall may cause prices of some food items to harden in the remainder of the month,” said Aditi Nayar, senior economist at ICRA, a credit rating and research firm.

The RBI has targeted to bring retail inflation down to 5% by March 2017 and 4% a year later.