Wholesale inflation falls further into negative

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SME Times News Bureau | 14 Sep, 2015
Despite a steep rise in prices of pulses and onions, India's annual inflation rate based on wholesale prices continued in the negative territory in August, falling to (-)4.95 percent, official data showed on Monday.

The wholesale prices had decelerated by (-)4.05 percent in July. The steep decline in August was mainly led by lower fuel prices.

The annual rate of inflation, as per the official wholesale price index, stood at 3.85 percent in the corresponding month of the previous year, according to data released by the commerce and industry ministry.

During the month under review, some commodities of mass consumption continued to upset household budgets and notably among them was onion, whose prices were higher by as much as 65 percent over the like month of the previous year. Pulses were dearer by 36 percent.

Other protein-rich food items such as milk, eggs, meat and fish recorded modest price increases. On a year-on-year (YoY) basis milk was costly by 2.08 percent, while eggs, meat and fish prices rose by 3.30 percent.

At the same time potatoes and vegetables were cheaper respectively by 52 percent and 21 percent. Even the prices of cereals and rice dwindled. Cereals depreciated by 1.65 percent and rice cheapened by 3.48 percent.

Overall, food articles' prices declined by 1.13 percent on a YoY basis.

Even under the manufactured products category, prices of commodities pertaining to food fell -- especially sugar that was lower by 19 percent year-on-year.

Under fuels -- the index for which was down 16.5 percent -- petrol was cheaper by 13.26 percent and diesel by 24.54 percent. Cost of cooking gas receded by 5.32 percent.

The WPI and consumer price index (CPI) which will be released later in the day, assumes significance as these are last significant pointers towards Reserve Bank of India's (RBI) rate decision.

The WPI and CPI indicators are also important, as they will give domestic guidance to the capital markets, just before the US Fed's Federal Open Market Committee (FOMC) meet on September 16-17.

The US Fed will decide during the FOMC meeting whether to raise interest rates.

India Inc. expects a better-than-expected WPI and CPI will drastically improve chances of a rate cut during RBI's monetary policy review slated for September 29.

Though welcoming the deceleration in inflation, India Inc cautioned against the deflationary trend and urged the apex bank for an immediate cut in key lending rates.

"Indian industry continues to be under the grip of deflation. Price pressures are at a record low," said Chandrajit Banerjee, director general with Confederation of Indian Industry (CII).

"The index has declined for the tenth consecutive month. Given that CPI inflation has also been declining, the RBI needs to reduce interest rates sharply to drive a recovery in demand."

Other major business body, the Federation of Indian Chambers of Commerce and Industry (Ficci) elaborated that though India remains a net importer of key commodities, the possibility of any immediate risk of importing inflation remains minimal.

"Under the present circumstances, it would be most appropriate for the RBI to give weight to growth considerations and announce a deeper cut in the policy rate," said Jyotsna Suri, president of Ficci.

On The WPI, the Associated Chambers of Commerce and Industry of India (Assocham) said that emphasis should be laid on the supply-chain management of items like pulses, onions and others essential commodities as their prices have shot up during the month.

“Impact of poor monsoon might reflect in the food prices, besides uneven rainfall may hit crops and could pile pressure on food inflation in the future, as such the government needs to outline its preparedness and plan of action to deal with any contingency arising out of such an event,” Rana Kapoor, president of the Assocham.

The markets too welcomed the strong macro numbers, the barometer 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange, closed 246.49 points or 0.96 percent up on Monday.