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WPI inflation hits 5-yr low of (-) 0.39%, but food prices up

Wholesale inflation turned negative for the second time in three months as fall in petroleum and food prices dragged it to a five-and-a-half year low of (-) 0.39% in January, raising hopes of a rate cut by RBI.

business Updated: Feb 16, 2015 22:47 IST
HT Correspondent
HT Correspondent
Hindustan Times

India’s wholesale inflation rate contracted 0.39% in January, a five-and-a-half year low, driven by tumbling fuel prices, data showed on Monday, intensifying pressure on the Reserve Bank of India (RBI) to lower borrowing rates to aid an economic revival.

The wholesale price index (WPI), the most commonly tracked metric to gauge economy-wide price movements of goods, stood at 0.11% in December, but could be revised downwards next month. The inflation rate for November was revised to (-)0.17% from the provisional estimate of 0%.

The last time inflation had touched this low level was in June 2009 when it was at (-) 0.4 %.

It was 5.11% in January last year.

Petrol prices declined 17% while diesel prices fell 10.41% in January from a year ago, mirroring the slump in crude oil prices that have slid more than 50% since June, from $115 to a barrel to the current $60 a barrel.

Between August and January, petrol turned cheaper by over Rs 17 a litre in 10 price cuts, while diesel prices were have been reduced by Rs 12 a litre since October in six price reductions.

On Sunday, oil companies raised petrol prices by Rs 0.82 a litre and diesel by Rs 0.61 a litre (in Delhi) to reflect recent hike in crude prices.

Experts, however, said food prices are showing signs of rising and the rabi crop harvest will largely determine inflationary trends in the coming months.

Although prices of certain protein-rich items and wheat declined during the month, overall food inflation was at a six-month high of 8%.

“The negative WPI inflation is a welcome sign. However, the negative inflation number has been brought about by the sharp fall in fuel prices, which is due to global developments. Food prices continue to be high,” credit rating and research firm CARE said in a recent report.

On the positive side, low global commodity rates will ensure that prices are largely under control.

India’s factory output growth slowed to 1.7% in December from 3.9% in the previous month, triggering fresh demands from the industry for lowering borrowing costs to aid an investment and spending revival.

“Given the continuing trend of moderate inflation both at the wholesale and retail level, and the fact that a durable recovery in the industrial sector is still out of sight, we hope that the central bank would continue with the policy rate cut cycle after the forthcoming budget”, said Ficci president Jyotsna Suri said.

“While RBI relies more on retail prices than wholesale prices, converging trends on food inflation may signal a further waiting before interest rates start to decline significantly,” said Debopam Chaudhuri, vice-president, research & chief economist, ZyFin Research.

First Published: Feb 16, 2015 17:36 IST