WPI drifts to 4.89%

Inflation dropped below 5 per cent in April and came into RBI's professed comfort range for the first time in over three years.
This raised hopes of more rate cuts next month.
The wholesale price index (WPI) fell to 4.89 per cent in April from 5.96 per cent in March. This is the first time that inflation has gone below 5 per cent since November 2009.
While core inflation fell below 3 per cent, primary food inflation also declined as vegetable prices fell by 9 per cent. Also, the consumer price index (CPI) fell for the second month in a row to 9.39 per cent due to the decline in food price inflation which has half the total weight in the index.
Crisil Research forecasts the average wholesale price index for the year to decline to 6.3 per cent, led by expectations of higher agricultural output (assuming normal monsoon), lower international crude prices and a further weakening of core inflation.
Slowing real wage growth in rural areas would keep core inflation relatively subdued in 2013-14. Even if consumption demand picks up after the monsoon, core inflation is unlikely to flare up, given that manufacturing growth is currently below its potential.
Most forecasters expect inflationary pressures to subside significantly this year from the previous year’s average of 7.3 per cent. Analysts attribute this to private consumption growth that decelerated sharply to 4.1 per cent in 2012-13. Consequently, there has been significant demand destruction, which is bringing down pressures on prices with a lag.
With inflation slowing for the third consecutive month, the finance ministry too made a strong case for a rate cut.
Core inflation fell sharply to 2.77 per cent in April from 3.48 per cent in March, suggesting a steep decline in demand.
Three crucial food articles — milk, fruit and vegetables and poultry – helped bring down inflation. Vegetables saw a deflation, while inflation in fruit prices was stagnant. Inflation in milk prices stabilised around 4 per cent. Inflation in prices of poultry products, though still high, is gradually coming down.

Earlier this month, RBI cut interest rates by a quarter percentage for the third time since January. Thus the repo rate came down to 7.25 per cent.
Following the good news on inflation, the bond market rallied to a three-year high, with the benchmark 10-year bond yield dropping 4 basis points.
Manufactured goods inflation fell to 3.4 per cent in April from 4.1 per cent in March and 5.3 per cent in April last year, while food inflation fell to 6.5 per cent from 8.7 per cent largely because of an unseasonal decline in food prices (food prices typically move higher in the beginning of summer).