Water the green shoots now
For a government seeking to help the economy climb out of its longest slump in a quarter of a century, the latest price data give a reason to rejoice. Wholesale Price Index (WPI)-based inflation, India’s most-watched cost-of-living index, plunged to 2.38% in September, the lowest in five years, aided by a sharp drop in vegetable and petrol prices.opinion Updated: Oct 15, 2014 22:40 IST
For a government seeking to help the economy climb out of its longest slump in a quarter of a century, the latest price data give a reason to rejoice. Wholesale Price Index (WPI)-based inflation, India’s most-watched cost-of-living index, plunged to 2.38% in September, the lowest in five years, aided by a sharp drop in vegetable and petrol prices.
Likewise, retail inflation tumbled to 6.46% in September, the lowest in nearly three years. The more than one percentage point drop in both the wholesale and retail rates in September over the previous month should cheer the NDA government, which rode to a landslide election victory, promising to bring down prices of essentials as part of its poll pledge to usher in “achche din”.
Wholesale food inflation, a measure of how costly the platter has become, grew 3.52% compared to the previous month’s 5.15%. Importantly, prices of protein-rich food items such as pulses, milk and eggs have also shown signs of moderating. As the tens of millions of people shift to higher standards of living, the focus is changing from basic needs of nutrition to more aspirational products such as rice and coarse grains, a trend that economists describe as structural inflation. ‘Manufactured products inflation’— a broad index to gauge price movements of industrial goods — was lower at 2.84% in September compared to August’s 3.45%, but still higher than last September’s 2.36%. Yet, in the current context, high manufactured products’ inflation implies greater demand and sales of consumer and investment goods, mirroring revival signs in the economy.
The time to open the bubbly, however, may be still some months away. The impact of the patchy monsoon rains this year, as well as cyclone Hudhud, which flattened rice fields and vegetable plantations in some states, could play out in the coming months. The Reserve Bank of India (RBI) may prefer to wait until inflation is fully tamed before cutting interest rates. The cheer will fully travel to the average consumer, only if, and when, the RBI sprinkles water on these little green shoots by slashing borrowing costs.