Millennium Post

Wholesale price inflation at 43-month low of 4.7%

Declining prices of manufactured goods helped wholesale price inflation ease to a three-and-a-half year low of 4.7 per cent in May, providing leeway to the Reserve Bank of India (RBI) to cut interest rates in its policy review on Monday so as to spur growth.

Falling for the fourth straight month, the inflation rate reached the lowest level since November 2009 when it was 4.50 per cent. Inflation based on the wholesale price index (WPI) stood at 4.89 per cent in April. In May 2012, it was 7.55 per cent.
Inflation in the food articles category, which has 14.34 per cent share in the wholesale price index basket, however, rose to 8.25 per cent in May. It was at 6.08 per cent in April. Manufacturing inflation declined to 3.11 per cent in May from 3.41 per cent in April.
Industry lobby Federation of Indian Chambers of Commerce and Industry (Ficci) demanded that the Reserve Bank of India (RBI) should consider a rate cut and persuade banks to pass on the rate cut benefits to borrowers. ‘With the downward trend in the prices holding on, the Reserve
Bank of India can consider a cut in the policy rate in the forthcoming monetary policy review,’ said Ficci.
Echoing similar views, CII Director General Chandrajit Banerjee said, ‘As non-food manufacturing inflation, which is widely used by RBI as an indicator to track the demand side pressures on the economy, has been showing a secular downward trend, it should encourage RBI to cut interest rates in its forthcoming Monetary Policy review slated for June 17.’

Another industry chamber, Assocham, said both government and the monetary authority need to focus on boosting the economic growth. ‘The need of the hour is to boost the investor sentiment. The RBI has to ensure that the cost of finance to the end-user becomes competitive without any further delay,’ Assocham Secretary General D S Rawat said.

However, CII said, the cause for concern is the resurgence in food inflation owing to a moderate rise in prices of fruits and vegetables, onion, milk, eggs, cereals and rice. Going forward, the prospects of a good monsoon may dampen food prices, it added.
Analysts, however, were of the view that it may be difficult for the Reserve Bank of India to cut rates in view of the sharp decline in the value of the rupee against the US dollar.
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