WPI inflation hits 0% in November, lowest in over 5 years
India’s wholesale inflation rate slumped to 0% in November, a five-and-a-half year low, driven by tumbling fuel and food prices, data showed on Monday, intensifying pressure on the RBI to lower borrowing rates to aid an economic revival.business Updated: Dec 16, 2014 00:46 IST
India’s wholesale inflation rate slumped to 0% in November, a five-and-a-half year low, driven by tumbling fuel and food prices, data showed on Monday, intensifying pressure on the Reserve Bank of India (RBI) to lower borrowing rates to aid an economic revival.
Experts, however, cautioned that the fall in inflation could also be partly because of statistical phenomenon called the “base effect”, where a drop looks magnified because of higher prices in the previous year, particularly in the case of onions, vegetables and fuel.
The wholesale price index (WPI)-based inflation, the most commonly tracked metric to gauge the economy-wide price movements of goods, was flat in November against last month’s 1.77% and 7.52% a year ago.
The November wholesale inflation is the lowest since 0.3% contraction in July 2009, reflecting a similar trend in retail inflation, which moderated to 4.38% in November.
Petrol prices have fallen 10% while diesel prices fell 3% in November from a year ago.
This mirrors a slump in crude oil prices, which have slid more than 40% since June from $115 a barrel to the current below $65 a barrel.
Since August, petrol has turned cheaper by more than `10 a litre, while diesel prices have gone down by more than `6 a litre since October.
Inflation rates, experts said, could start rising from December onwards once this “base effect” starts wearing out. “As the base effect wanes, WPI food inflation on a year-on-year basis is expected to rise sharply in the coming months,” said Aditi Nayar, senior economist at ICRA, a credit rating and research firm.
Also, patchy monsoons this year could hurt the winter harvest, thereby lowering farm output and pushing up prices. “The only risk factor is a possible increase in agricultural product prices in the next two months as kharif crop is estimated to be lower this year,” said Madan Sabnavis, economist at CARE Ratings.
Business leaders have been demanding a rate cut for long. Reserve Bank of India governor Raghuram Rajan has, however, kept interest rates high and said it would be “premature” to cut rates now.