WPI Inflation Stays in Negative Zone Again

This has prompted industry to step up demand for another rate cut

Published: 15th July 2015 05:20 AM  |   Last Updated: 15th July 2015 05:20 AM   |  A+A-

NEW DELHI: The wholesale price index (WPI) based inflation set to continue its negative trend for the eighth consecutive month at negative 2.4 per cent in June. The data comes a day after the retail inflation for the same month rose to an 8-month high of 5.4 per cent.

Experts believe that the conflicting data would make it difficult to predict the next course of action for the Reserve Bank of India, which has cut its rates three times so far this year.

“WPI covers much wider range of goods than CPI. What you are seeing is in certain basket of goods inflation is positive and in certain cases it is negative. Now whether you think as inflation or deflation depends on you how you look at and the purpose for data,” TCA Anant, chief statistician of India said.

WPI Inflation.jpgThis may not open space for the RBI to go in for another policy rate cut on August 4, market experts say. A collapse in global oil prices has unleashed a wave of monetary easing around the world as central bankers seek to stave off deflation and bolster their economies. But in India, where food accounts for nearly half of the consumer price index, policy makers fear that retail inflation could accelerate if oil prices rebound or weak rains hurt food production.

It has been in the negative zone since November 2014. A year ago in June 2014, inflation was 5.66 per cent. The Central bank has said it would watch out for the data, including inflation, and the monsoon progress before any change in its policy rates.

Last month, rate of price rise for food items, especially wheat, fruits and milk eased at the wholesale level. Overall wholesale inflation in food category declined to 2.88 percent compared with 3.80 percent in May. However, vegetable prices declined 7.07 percent, with potato prices slumping 52.40 percent. Price of pulses got dearer by 33.67 percent as against 22.84 percent in the previous month.

However, industry expects RBI to reduce rates further and banks to do the same. “Industry would like to see a deeper cut in the policy rate and its equivalent transmission by banks in the form of lower lending rates,” Ficci President Jyotsna Suri said. RBI would also wait for banks to pass on the benefit of three rate cuts during the year completely.

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