Millennium Post

Inflation at 5 year low of (-) 0.39%, raises hopes of rate cut

Wholesale inflation turned negative for the second time in three months as fall in petroleum and food prices dragged it to a five-and-a-half year low of (-) 0.39 per cent in January, raising hopes of a rate cut by RBI.

Reflecting significant improvement in the price situation, the inflation for the second time in three months remained in the negative territory in January. Inflation measured on wholesale price index (WPI) was at 0.11 per cent in December. The data for November was revised downwards to a negative (-) 0.17 per cent, from the provisional estimate of zero.

Although the prices of certain protein rich items and wheat declined during the month, the overall food inflation was at a six month high of 8 per cent, as per the government data released on Monday. The last time the inflation had touched this low level was in June 2009 when it was at (-)0.4 per cent. RBI Governor Raghuram Rajan had on January 15 cut interest rates ahead of the scheduled monetary policy review and it is expected that he might announce another cut after the Budget in wake of significant improvement in the inflation situation. The next review is due on April 7.

Inflation in ‘fuel and power segment’ was negative at (-) 10.69 per cent in January, while in manufactured products it was at 1.05 per cent. The contraction in WPI inflation for petrol was steeper at 17.08 per cent in January from 11.96 per cent in December. Similarly the rate of decline in diesel prices last month was higher than in the previous month. “Given the continuing trend of moderate inflation both at the wholesale and retail level and the fact that a durable recovery in the industrial sector is out of sight, we hope that the central bank would continue with the policy rate cut cycle after the forthcoming budget,” FICCI President Jyotsna Suri said. Data showed that inflation in pulses, vegetables and cereals was higher in January over the previous month. On the other hand, the rate of price rise in potato, milk, rice and protein rich items like egg, meat and fish was slower in the month under review.

The inflation in the primary articles segment inched up to 3.27 per cent in January, as against 2.17 per cent in December. Commenting on the numbers, PHD Chamber said a significant rate cut by the RBI becomes inevitable to boost the demand scenario vis-a-vis easy availability of credit to the various consumers and producers’ segments.

“We expect at least 1 per cent cut in the repo rate before entering the new financial year 2015-16, it said. Rajan, in the monetary policy review earlier this month, kept key interest rate unchanged saying the apex bank wanted more comfort on inflation front as it awaited cues from Finance Minister Arun Jaitley’s first full year Budget.
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