Inflation at 32-month low of 6.87%

The Wholesale Price Index (WPI)-based inflation fell below the 7% mark in July to a 32-month low of 6.87%, primarily driven by non-revision in diesel, LPG and kerosene prices coupled with a favourable base, rekindling hopes of a much anticipated cut in interest rates by the Reserve bank of India.

Headline inflation, also known as WPI inflation, was at 7.25% in June and 9.36% in the year ago period. The moderation in inflation comes at a time when the domestic economy has slowed down significantly with analysts expecting GDP growth in April-June quarter to fall below 5%.  Though inflation has eased in July from the June levels, it still remains much above the comfort levels of the central bank.

According to data released by the Commerce and Industry Ministry on Tuesday, fuel and power inflation eased to nearly 6% in July from 12% year ago. Fuel and power have a combined weightage of 14.91% in WPI inflation. Food inflation, which accounts for nearly 14.33% in the overall inflation basket , eased marginally to 10.06% in July from 10.8% in the previous month, data showed. It stood at 8.19% in the same period of previous fiscal.

However, manufacturing or core inflation surged to a five-month high of 5.6% in the month under review from 5% in June on the back of high prices of cotton textiles, paper and paper products,  cement and lime. 

Experts and brokerages feel there is nothing much to cheer about headline inflation dipping below 7% as it is likely to be a temporary phenomenon.  “Lower headline inflation does not provide much reason to cheer as it is primarily on account of suppressed inflation in the fuel index,” said Kajal Gandhi, ICICI Securities.

Analysts also feel that food inflation may get aggravated further due to lower produce on deficient monsoon and supply bottlenecks.

“The RBI should immediately look at bringing down interest rates as inflation has been declining in the last two months,” said R V Kanoria, President, FICCI.

Despite a clamour by the industry for cut in interest rates, the consensus across the board is that RBI is unlikely to act in its upcoming policy review next month.