WPI inflation eases to a 10-month low of 2.76% in January on cheaper fuel

The wholesale price inflation (WPI) rate fell to a 10-month low of 2.76 per cent in January, official figures released on Thursday showed. The inflation rate in December had stood at 3.80 per cent, while it was 3.08 per cent in January, 2018.

The trend is in line with the consumer price inflation rate, which declined to a 19-month low of 2.05 per cent in January from 2.11 in December, according to data released on Tuesday.

Among various segments, food items saw an inflation rate of 2.34 per cent in January. These items had witnessed deflation or fall in prices for the previous six months. In December, the deflation rate was at 0.07 per cent.

On the other hand, food items continued to see a fall in prices in the consumer price index (CPI) in January, even as the deflation rate came down to 2.17 per cent from 2.65 per cent in December.

If this trend continues for a few more months, farmers might start getting reasonable prices after a long time. However, the interpretation is subject to different structures of WPI and CPI as well as the presence of middlemen.

Fuel, power and manufactured products saw the WPI-based inflation rate cooling down. It fell sharply to 1.85 per cent in January, against 8.38 per cent in December in the former owing to easing in prices of motor fuel and LPG.

The inflation rate was down at 2.61 per cent, against 3.59 per cent in this period.

“We expect the wholesale inflation rate to remain around 3.5 per cent by the end of the fiscal year and will be guided by recovery in the prices of food and manufactured goods. We expect oil prices to remain volatile (slightly towards the higher end), owing to removal of waivers granted by the US government on the Iran sanctions and probable supply cuts by the OPEC,” said Manisha Sachdeva, associate economist at CARE Ratings.

The Reserve Bank of India, which mainly factors in the CPI inflation rate, had cut the key lending rate by 0.25 per cent this month. The decline in inflation may provide further head-room to the central bank to cut interest rate (repo) in April.