WPI inflation eases to 0.9% in June as food prices decline

Wholesale price-based inflation eased to 0.9 per cent in June -- the lowest in at least eight months -- as prices of food and manufactured items declined, prompting the industry to demand for a rate cut by the RBI.
The wholesale price index (WPI) based inflation was 2.17 per cent in the previous month and (-)0.09 per cent in June 2016. The reading was 1.82 per cent in November 2016 -- since the availability of data for the new 2011-12 base year series.
The government data released today showed that prices of food articles contracted by 3.47 per cent in June on a yearly basis. Vegetable inflation stood at (-)21.16 per cent.

Potato saw a maximum deflation of 47.32 per cent, followed by pulses at 25.47 per cent. For onion, deflation was 9.47 per cent in June.
The rate of price increase was 1.93 per cent in cereals while that of protein-rich items like egg, meat and fish was 1.92 per cent in June.
The slowdown in wholesale inflation comes against the backdrop of retail inflation easing to a record low of 1.54 per cent in June.

Industry chambers said that overall price pressures are presently subdued in the economy even as private investments continue to face several impediments in form of corporate debt overhang, NPAs and regulatory challenges.

"The declining inflation scenario, which has been undershooting the central bank's inflation target by a large margin, should induce the RBI to resume its rate easing cycle. CII strongly recommends a rate cut of 50 basis points in the forthcoming monetary policy to provide a fillip to demand," CII Director General Chandrajit Banerjee said.
ICRA Principal Economist Aditi Nayar said a pervasive disinflation across the four categories of primary articles and a halving of inflation for fuel and power exerted a drag on the June WPI inflation.
"The decline in the WPI inflation reinforces our expectation that the MPC will reduce the repo rate by 25 basis points in their August 2017 meeting, in a split vote," Nayar said.

Fuel and power segment saw some cooling of inflation at 5.28 per cent, from 11.69 per cent in May. Manufactured product inflation read 2.27 per cent, as per data released today.
"WPI numbers will have consequent downward impact on CPI, which may allow RBI to induce the demand by reducing interest rates," Assocham President Sandeep Jajodia said.
India Ratings & Research Chief Economist Devendra Kumar Pant said there is two-third probability that the RBI will cut policy rate by 25 basis points in August monetary policy.
"However, it is unlikely to improve investment demand in the economy. It may boost some demand for consumer durable sector, which is posting negative growth after demonetisation," he said.

The next meeting of the monetary policy committee is on August 1 and 2.
Soon after retail inflation hit a record low, Chief Economic Advisor Arvind Subramanian had said there had been a "paradigm shift" in inflation trajectory and that has been "missed by all".
His comments were seen as an apparent reference to the decision of the Monetary Policy Committee, chaired by RBI Governor Urjit Patel, which has kept the key policy rate unchanged so far this year citing pricing pressures.
Besides, industrial production data showed that the growth in factory output slumped to 1.7 per cent in May, from 8 per cent a year ago.

WPI inflation is calculated on the basis of 2011-12 as the base year. It was revised in May from 2004-05 with an aim to reflect the macroeconomic picture more accurately.
The index basket of the new series has a total of 697 items, including 117 for primary articles, 16 for fuel and power and 564 for manufactured products.
The final print of April WPI inflation remained unchanged at 3.85 per cent.