Millennium Post

Rate cut hopes rise as inflation hits 5-month low

This is the slowest pace of price rise, as measured by the Wholesale Price Index, since July 2013, when inflation was 5.8 per cent. In November, wholesale price inflation increased at the fastest pace in 14 months at 7.52 per cent.

The moderation in December WPI figures comes on the back of easing prices of essential food items, including vegetables, cereals and protein-rich items.

Inflation in food articles, which has a 14.34 per cent share in the WPI basket, was 13.68 per cent in December, official data showed. It was 19.93 per cent in November.

Inflation in vegetables declined to 57.33 per cent in December from 95.25 per cent in the previous month. This was driven by onion prices, which gained 39.56 per cent compared with a 190.34 per cent rise in November.

However, the rate at which potato prices rose was more than double at 54.65 per cent in December over November.

Inflation in fruits and protein-rich items such as eggs, meat and fish stood at 9.07 per cent and 11.40 per cent, respectively. In milk, inflation increased to 6.93 per cent.

With inflation declining, industry has clamoured for a reduction in interest rates. However, some experts said the central bank may keep rates on hold at its quarterly monetary policy scheduled on January 28.

Industry chambers have pitched for lower interest rates to prop up growth. Industrial output in November contracted 2.1 per cent, the worst performance in six months. 'The easing of inflation at a time when industrial growth continues to be in the red should induce RBI to review its monetary policy stance and cut its policy rates to rejuvenate growth, which has been hit by high interest costs, flagging investments and subdued demand,' CII Director General Chandrajit Banerjee said.

October inflation was revised upward to 7.24 per cent from 7 per cent earlier.

'Taking both growth and inflation dynamics into account, we think the RBI's bias is not to hike rates, and maintaining a cautious stance. RBI decision in two weeks looks like a hold,' Barclays said in a research note.

According to the WPI data, inflation in the primary articles basket and the fuel and power segment was at 10.78 per cent and 10.98 per cent, respectively.

Inflation in manufactured products such as sugar and edible oils was flat at 2.64 per cent on a monthly basis.

Data released earlier this week showed retail inflation eased to three-month low of 9.87 per cent.

'Given the weakness in consumer demand and contraction in industrial production in October-November 2013, we expect the central bank to retain the repo rate in the upcoming policy review,' ICRA senior economist Aditi Nayar said.

The Reserve Bank kept key policy rates unchanged last month on expectations that wholesale and retail inflation would ease.

The RBI had increased the key policy rate (repo) twice between September and November to check inflation. The rate is currently 7.75 per cent.
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