NEW DELHI: Even after the retail price inflation showed some signs of downturn last week, the wholesale price index on Wednesday rose to 3.74 percent in August from 3.55 percent in July. This was the fifth straight month of WPI inflation after continued deflation for over a year.
In first week of September, retail price inflation remained lower at 5.05 percent that had declined from 6.07 per cent in July, below the tolerance level of the government.
Despite food inflation in both the indices showing signs of decline, both indices showed opposite trend. This was because the food index has lower weightage of over 14 percent in WPI against over 45 percent in CPI.
This will bring a challenge for the new RBI Governor Urjit Patel for any monetary policy tweaking in October. However, the fact that WPI inflation is still 4 percent would give some comforts to the RBI in case it wants to cut the policy rate to spur economic growth.
Aditi Nayar, senior economist at ICRA said that the WPI will have a limited impact on RBI’s repo rate cut decision but we expect at least one 25 basis points rate cut this year. A rate cut is more likely to happen in December rather than October, she added.
According to global financial services major DBS, the softening trend in inflation leaves the door open for a rate cut in the fourth quarter of this calender year “with odds of a move in October on the rise.”
“A benign inflation path going forward and likelihood of a dovish policy committee leaves the door open for further easing but this needs to be balanced off with firmer demand dynamics and risks of US rate normalisation as the September Federal Open Market Committee meeting approaches,” DBS said in a research note.
Commenting on the inflation number, D S Rawat, secretary general of Assocham said, “ prices of products which are of national interest has been continuously rising at industry level are pulses, potato, and fibres but recent concern is sugar which has started to rise at much higher rate which policy makers should check though prices of onions have been managed.”