Wholesale inflation dips to -2.06% in Feb on low fuel, commodity prices
The wholesale inflation dipped to (-)2.06% in February as prices of food articles, manufactured items and fuel products fell during the month.business Updated: Mar 17, 2015 00:39 IST
India’s wholesale inflation fell to (-)2.06% in February, the fourth straight monthly decline, hammered down by low fuel and commodity prices, latest price data released on Monday showed.
The wholesale price index (WPI)-based inflation, the broadest measure to capture economy-wide price movement of goods, was (-) 0.39% in January, and 5.03% in January last year.
Data released last week showed that India’s retail inflation rate rose to 5.37% in February driven by higher food prices, including vegetables, bringing it closer to the Reserve Bank of India’s (RBI’s) tolerable threshold limit of 6%.
Consumer price index (CPI)-based retail inflation — a metric to measure changes in shop-end prices — acts as the central bank’s main guide on interest rate-related decisions.
The decline in prices of manufacturing goods points to fragile demand conditions and indicates that robust recovery has yet to set in despite the improved industrial performance evidenced last month, said Chandrajit Banerjee, director-general, CII.
“While the subdued global commodity prices have aided the softening of inflation trend in India, weak market demand is also an important aspect,” said A Didar Singh, secretary-general, Ficci. “RBI should take further measures to strengthen the demand impulses in the economy and continue with its rate-cutting cycle in the coming months.”
Experts said the pace of drop in WPI inflation is also stronger than CPI inflation as WPI inflation incorporates more tradeables than retail inflation, which is heavily loaded with service sector elements.
“(The data) reflects factors such as softening trend in global commodity prices (for instance, 0.7-1.0% decline in indices for rubber and plastics, chemicals, and basic metals) and slowdown in export demand,” said Aditi Nayar, senior economist, credit rating and research firm ICRA.
“This is just a dis-inflation, created out of a sharp drop in global commodity prices in the midst of not-too-strong depreciation pressures on the currency,” said Indranil Pan, chief economist, Kotak Mahindra Bank. “For instance, oil prices have gone down by 48% from August 2014 onwards, while the rupee has depreciated by 2.7% in the same period, thereby proving to be beneficial for WPI inflation."Recently, RBI reduced its main lending rate — the repo rate — by 0.25 percentage points to 7.5%, rekindling hopes of lower equated monthly installments (EMIs) for homeloan borrowers and cheaper bank capital for companies to aid their expansion plans.