Inflation measured by the wholesale price index (WPI) dropped to zero in November, over five-year low, led by a sharp moderation in food, fuel and manufacturing product prices. The dip in price level has intensified the pressure on the Reserve Bank of India (RBI) to cut interest rates.
The annual rate of inflation, based on monthly WPI, declined to 0.0% in November compared to 1.8% for the previous month and 7.5% during the corresponding month of the previous year.In September, the inflation stood at 2.4%. While the RBI gives more weightage to retail inflation when it reviews interest rates, the sharp dip in the wholesale inflation rate is expected to a trigger a fresh round of a vociferous demand for lowering rates to boost growth and investment.
The sharp easing comes after recent data showed retail inflation slowed to a multi year low of 4.4% in November.Data showed wholesale vegetable prices dropped 29% in November, while overall food inflation slid to 0.6% year-on-year. Fuel prices declined nearly 5% year-on-year, while manufactured product prices slowed to 2%. Some vegetables such as potato displayed stubborn price pressure, rising 34% in November, while onion prices, which had stoked anxiety a few months ago, fell 56.3%. Milk, fruits prices continued to be in double digits.
“Following the drop seen in November CPI (consumer price inflation) to 4.4% y-o-y, the WPI data surprised on the downside coming in at 0% y-o-y , lowest since July 2009. The decline in WPI was once again broad based -across food, fuel and manufactured goods. While food and fuel inflation trends have been helped by supplyside factors and base effect, the decline in core WPI inflation to 2.2% from 2.5% reflects subdued demand pressure as well. Today's data reinforces our view that rates could be eased cumulatively by 100 basis points by FY16. Some economist said the data should be viewed with caution as it could signal weak demand in the economy and point to deflation.
The finance ministry has strongly backed a rate cut given the sharp moderation in inflation.
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