Wholesale inflation drops to 5-year low of 1.77% in October

India Inc raises pitch for rate cuts by RBI

Wholesale inflation in October eased to a five-year low of 1.77 per cent, backed by slower rise in prices of food and fuel.

An optimistic government said the decline in global crude prices should help soften food inflation further.

“We believe that softening of prices is in our interest. With crude prices down, this trend of lower food prices will continue,” said Finance Minister Arun Jaitley.

India Inc, however, heightened the pitch for a reduction in interest rates by the Reserve Bank of India (RBI) in its December 2 policy review.

The Wholesale Price Index (WPI) has fallen for the fifth month in a row.

Food inflation during October fell 1.26 per cent to its lowest since January 2012, while fuel and power group inflation was recorded at 0.43 per cent, down from 1.33 per cent in September, showed government data.

The finance minister, however, cautioned against being overly optimistic about a prolonged spell of lower crude prices, which dropped to a four-year low of $77 a barrel on Thursday.

WPI inflation was 7.24 per cent in October last year.

The fall in wholesale prices comes on the back of an all-time-low consumer price inflation of 5.52 per cent this month.

A seminal fall in inflation numbers since the new government took over in May has raised the pitch for a rate cut by the RBI.

“This (fall in inflation) provides sufficient room for the RBI to review its prolonged pause in policy rates and move towards easing in its forthcoming monetary policy review, especially as investment and consumption demand are yet to show visible signs of a pick-up,” said Industry body CII in a statement.

“The inflationary expectations are fairly tamed, and we see no immediate upside risks with regard to prices. Given that, it is important to reiterate that demand remains subdued. The consumer durables segment reported negative growth for the fourth consecutive month in September 2014. It is extremely imperative that all levers are used to pep up demand. Alleviated inflation creates room for a more accommodative stance from the central bank,” said Ficci.

Jaitley too had said recently that high interest rates were one of the key risks for the Indian economy, nudging the RBI for cut rates.

But economists remain sceptical over the RBI cutting interest rates any time soon, as they expect inflation to rebound by the end of this year as the impact of the base effect wears off and that of a sub-normal monsoon on summer crop becomes visible.

The RBI, which has raised its key policy rate by 75 basis points since September last year, has maintained a status quo on rates in its last four policy reviews.