Feb WPI at 9-month low

Number within RBI comfort zone but experts say rate cut unlikely

Wholesale inflation fell to a nine-month low of 4.68 per cent in February from 5.05 per cent in the previous month, as prices of food items rose at a lower pace, official data showed on Friday.

In May 2013, the inflation was at 4.58 per cent, the previous low.

The inflation, based on the Wholesale Price Index (WPI), declined to the Reserve Bank of India (RBI)’s comfort zone — below five per cent — after eight months.

But RBI might not cut rates at its policy meeting next month — something industry has demanded to spur economic growth — as risks to price pressures exist due to untimely rains and fears of El Niño affecting the monsoon, economists said.

State Bank of India’s Chief Economic Advisor Soumya Kanti Ghosh said: “RBI might hold rates as rains have damaged some crops. Also, there is a fear of El Niño hitting the monsoon, which would be watched by RBI.” Risks that could lead to an increase in rates existed, he added.

Finance Minister P Chidambaram also sounded a word of caution. “Need to watch inflation carefully.... Happy that overall inflation is coming down,” he said, expressing satisfaction at the improvement in the price situation ahead of the general elections.

Also, inflation numbers are being revised sharply. The rate of price rise for December was revised upwards to 6.4 per cent, from 6.16 per cent earlier.   

Besides, core inflation (relating to non-food manufactured products), one of the key determinants of RBI's monetary stance, rose to 3.15 per cent in February from 3.04 per cent in January, narrowing the gap with headline inflation.

Friday's data showed food prices rose 8.12 per cent in February year-on-year, lower than 8.82 per cent in January. Within food items, the price rise in vegetables saw a decline; fruit saw higher rate of price rise.

Prices of vegetables, which were blamed as one of the reasons for the rout of the Congress in the Assembly elections last year, increased just 3.99 per cent in February against 16.60 per cent in the previous month. The steep decline in inflation in vegetables could be seen from the fact that it was as high as 56.78 per cent in December and 97.72 per cent in November.

Onion prices, which played a crucial part in the Assembly elections' outcome last year, declined about 20 per cent in February, a sharp contrast to the 200-300 per cent inflation seen in September, October and November when Assembly elections were underway. In January, onion prices rose 6.59 per cent. Fruit inflation rose to 9.92 per cent in February from 5.32 per cent in January. Pulses continued to witness a fall in prices, this time by 4.12 per cent against a 6.10 per cent decrease in January.

Manufactured product inflation remained at a low level of 2.76 per cent in February vis-a-vis January. Processed food items within the manufactured category saw the rate of price rise coming down to 0.90 per cent from 1.50 per cent.

State Bank of India's Ghosh explained the rise in core inflation was the result of imported inflation and some pass-through of price rise in certain products such as steel.

As WPI-based inflation fell, there were demands from industry for a rate cut from RBI, to give economic growth a boost. Even as industrial production rose in January, after three months of contraction, the growth was barely 0.1 per cent.

Now, RBI is increasingly looking at Consumer Price Index-based inflation to decide its monetary stance. Retail inflation had declined to 8.1 per cent in February from 8.79 per cent in January.