WPI Falls to -2.06% in February

Wholesale prices declined for the fourth month in a row in February, taking inflation to its lowest in the current data series that started in 2005 and raising prospects of a cut in interest rates despite a moderate rise in retail inflation in the month.
The wholesale price index (WPI) fell 2.06% in February from the year ago while the December number was revised to a decline of 0.5% against a 0.11% rise estimated initially. The fall in wholesale prices is sharper than the consensus estimate of -0.7% and well below -0.39% in January.
The numbers raised hopes of a rate cut because of near zero core inflation, which indicates very weak domestic demand.
Industrial growth, as measured by the index of industrial production (IIP), dropped to a three month low of 2.6% in January, with a 5.3% contraction in the production of consumer durables, pointing to fragile consumer sentiment.
Lower interest rates are widely expected to stimulate demand, but a spike in food prices has clouded the outlook for inflation-otherwise on a downward trajectory for manufactured goods and fuelsand with it the case for speedy cuts in the cost of funds.
WPI has a much lower 14% weight when it comes food items as opposed to more than 45% for the consumer price index (CPI), which explains some of the divergence between the two in recent months.
Consumer inflation rose to 5.4% in February from 5.2% in January.Heavy rain in the current month has damaged crops and also made it difficult for harvested produce to reach the market, causing a spike in prices.
Beyond food, however, there is not much inflation in other items, something that industry has flagged as evidence of weak consumer demand.
The central bank had cut repo rate by 25 basis points in the week after the February 28 budget, but the subsequent rise in consumer inflation dimmed hopes of a another reduction soon.
Wholesale inflation in food articles was at 7.74% in February, down from 8% in January. Fuel and power deflation deepened to 17.42% from 10.69% in January.Wholesale manufactured prices have fallen close to zero with inflation pegged at 0.33% in February compared with 1.05% in January.