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WPI inflation unchanged at around 1% in August, gives RBI room for rate cut

Food inflation rises, but core turns into deflation, prompting rate cut hope

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The wholesale price index (WPI) inflation rate remained stagnant at 1.08 per cent in August, versus the previous months, even as food items saw a higher rate of increase in prices.

However, there was core deflation (belonging to manufactured products, minus food products) after a gap of 34 months in August, raising hopes of RBI rate cuts.

The movement in WPI inflation rate was different from its CPI counterpart. The CPI inflation rate rose to 3.21 per cent in August from 3.15 per cent in July.

This was so because food items have more than 45 per cent weight in CPI, while it has just 15 per cent in WPI.

Food inflation rate in WPI moved up at 7.67 per cent from 6.15 per cent over this period.

Inflation in non-vegetarian items such as egg, meat, and fish rose to 6.6 per cent last month from 3.16 per cent in July.

WPI inflation unchanged at around 1% in August, gives RBI room for rate cut
In fact, food inflation in CPI also rose, but remained largely contained. It rose to 2.99 per cent from 2.36 per cent.

The increase in prices of food items was neutralised by manufactured goods.

Manufactured items, in fact, saw flat prices or zero inflation rate in August, compared to 0.34 per cent in the previous month. Barring transport equipment, cement, tobacco products and processed food products, most items saw deflation or decline in prices.

Fuels also face fall in prices with LPG, petrol, diesel all facing deflation.

All this meant that there was core deflation (manufactured items without food products).

Aditi Nayar, principal economist at ICRA, said, with pricing power of producers unlikely to strengthen and commodities ex-crude oil likely to remain sluggish in the immediate term, the core-WPI inflation rate may remain sub-zero in the rest of this calendar year, she added.

“The core-WPI in August 2019 has further reinforced our expectation of a rate cut in the October 2019 policy review. In our view, the assessed space for further accommodation should be front loaded,” Nayar said.