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Inflation hits zero, pressure on RBI to drop rates

vegetablesNEW DELHI: Wholesale price inflation hit a zero level in November, the lowest in about five and half years, on account of decline in prices of food, fuel and manufactured items.
The Wholesale Price Index (WPI) based inflation was at 1.77% in October and 7.52% in November 2013.

As per data released by the government on Monday, the food inflation fell to nearly three year low of 0.63%. Food inflation is on decline since May.

This is probably the first time when WPI inflation has hit exact zero level. The last time WPI was lower than this was (-)0.3% in July 2009.

Onion price contracted 56.28% as compared to a contraction of 59.77% in October. In case of vegetables, the contraction was 28.57%. However, prices of protein rich items of egg, meat and fish rose during November at 4.36%, while inflation in potato stood at 34.10%.

Inflation in manufactured products, like sugar, edible oils, beverages and cement, fell to 2.04% in November as against 2.43% in the previous month. Prices in fuel and power segment contracted by 4.91%, as against 0.43% inflation in October.

The sharp drop in WPI inflation, which fell for the sixth month in a row, came at the back of retail inflation declining to a record low of 4.38% in November.

The decline in both retail and WPI inflation for November coupled with contraction of industrial production to 4.2% in October, will put pressure on RBI to lower interest rates to boost growth.

The Reserve Bank of India has maintained a status quo in interest rate since January. The RBI factors in retail inflation while formulating its monetary policy.

Finance minister Arun Jaitley too on several occasions had nudged the RBI to cut rates. The issue also figured during a debate in the Lok Sabha last week.

RBI governor Raghuram Rajan has emphasised that interest rate cut by itself would not lift the economy. Industry has been demanding easing of interest rates to boost growth, which has slumped to 4.7% in 2013-14.

The economy is estimated to grow in the range of 5.4-5.9% this fiscal.  – From Press Trust India

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