WPI-based inflation falls to 8-month low

Uptick in core inflation a deterrent to RBI's policy rate cut, say experts

The wholesale price index (WPI)-based inflation eased to an eight-month low of 5.05 per cent in January from 6.16 per cent in the previous month, pulled down mainly by food prices. The data came on a day when the government said the country was going to produce record food grain of 263.2 million tonnes in 2013-14.

Inflation in food items was down to a single digit for the first time since May at 8.80 per cent in January from 13.68 per cent in the previous month. The rate of price rise in onions — one of the prime causes of high inflation in the previous months — plunged to 6.59 per cent from 39.65 per cent in December. Overall vegetable inflation plummeted to 16.60 per cent from 57.33 per cent.

Analysts said though the decline in inflation was faster than expected due to a correction in vegetable prices, the rate of price rise in food items was still high. “Despite a correction in vegetable prices, as well as a favourable monsoon and agricultural production scenario in 2013-14, food inflation remains elevated, highlighting the innate demand-supply gaps. Such factors would ensure that high food inflation remains persistent,” said Aditi Nayar, senior economist at ICRA Ratings.

Cereal prices rose 9.27 per cent in January year-on-year, lower than 10.19 per cent in the previous month. The agriculture department said on Friday that rice production was expected to be at an all-time high at 106.19 million tonnes and wheat production at a record 95.60 million tonnes in 2013-14.

With inflation coming closer to the RBI’s comfort zone of 5 per cent, expectations are that the central bank might ease policy rates to spur economic growth.

However, some economists caution that the RBI might not tinker with rates as core inflation (related to non-oil and non-food items) has shown an uptick. The RBI will have one more data set next month before deciding on policy.

Core inflation inched up to 3 per cent in January from 2.8 per cent a month back. Inflation in manufactured items went up to 2.76 per cent in January from 2.64 per cent in the previous month. “WPI-based inflation has eased in line with improved agricultural supplies. Manufactured inflation remains sticky, implying that some pricing power is left with companies,” said Rupa Rege Nitsure, chief economist at Bank of Baroda.