Wholesale prices plunge 4.95% in August

Fuel prices tumble 16.50% from a year ago; data to add pressure on RBI to cut rates

India’s wholesale inflation remained in the negative territory for the tenth straight month in August at (-)4.95% despite a sharp spike in onion and pulses' prices resulting in proactive measures by the government to arrest prise rise.

The deepening of deflation in August could be explained by subdued global commodity and crude prices besides deflation in the core sector, an indication of weak demand in the economy. The sliding prices of potato and other vegetables also contributed to the decline.

The wholesale price index fell 4.95% in August compared to a 4.05% decline in July, marking the tenth month of deflation, data released by the ministry of commerce and industry showed on Monday.

Food inflation, with an over 14% weight in the index, remained in the deflationary zone for the second straight month at (-)1.13% in August versus (-)1.16% in the previous month. Vegetables prices fell 21.21% in August versus 24.52% in July, marking the fifth straight month of deflation.

The price rise of onions zoomed up to 65.29% in August from a year ago period compared to a (-)0.49% in July. Inflation in pulses rose to 36.4% during the month versus 35.75% in July. As pulses' prices shot up  to Rs 155 per kg, the government has decided to import additional 5,000 tonnes of tur dal to ensure domestic supply. The government has also imported large amount of onions from Egypt and Afghanistan to boost domestic availability.

The deflation in the core sector deepened during the month, indicative of weak domestic demand.

This may urge the central bank to cut rate for the fourth time in 2015 during the policy meet on September 29.

RBI has cut rates thrice by 25 basis points each this calendar year thus taking the repo rate to 7.25%.

Manufactured products’ inflation, which is essentially considered by RBI for policy decisions, fell further to 1.92% versus 1.47% in July.

The average wholesale inflation in 2014-15 was 2.1% against 6.0% in 2013-14.

The deflation in fuel intensified further in August to 16.5% from 12.81% in the previous month.

Global brokerage firm Goldman Sachs has forecast that global supply glut could push the crude oil prices to as low as $20 a barrel. Oil prices have fallen by over 50% in the last one year.

Brent crude prices stood as $48.59 per barrel on Friday, 1.5% lower than the previous day.