Softening prices of fuel and some food articles pulled WPI inflation to a eight-month low of 3.8 per cent in December, raising hopes for a rate cut by the RBI.
This is the second consecutive month of decline in Wholesale Price Index (WPI)-based inflation; this was 4.64 per cent in November 2018, down from 5.54 per cent in October. In December 2017, WPI had stood at 3.58 per cent.
According to government data released Monday, deflation in food articles stood at 0.07 per cent in December, against 3.31 per cent in November. Vegetables continued a deflationary trend for six months, nudging 17.55 per cent in December, considerably lower than the 26.98 per cent of the previous month.
Fuel, power prices
Inflation in the ‘fuel and power’ basket in December slumped to 8.38 per cent, nearly half of November’s 16.28 per cent. This was on account of falling prices of petrol and diesel through December.
Individually, in petrol and diesel, inflation was 1.57 per cent and 8.61 per cent, respectively, and for liquified petroleum gas (LPG) it was 6.87 per cent during December.
“The continuing deceleration in the growth of WPI and softening of global fuel prices provide ample opportunity to the MPC (monetary policy committee) to cut down the policy rate at the earliest; this will kick-start investment and revival in overall industrial growth,” Assocham said.
Inflation in manufactured items slowed to 3.59 per cent in December, from 4.21 per cent in November.
Cheaper food
Among food articles, potato prices became substantially cheaper, with inflation at 48.68 per cent in December, as against 86.45 per cent in November. Inflation in pulses stood at 2.11 per cent, while in ‘egg, meat and fish’ it was 4.55 per cent. Onions witnessed deflation of 63.83 per cent in December, compared to 47.60 per cent in November. Deflation in fruits was at 3.69 per cent in December, as against 2.49 per cent in the previous month.
The 3.80 per cent inflation is the lowest in eight months, and a lower inflation than this was last seen in April at 3.62 per cent.
The Reserve Bank of India (RBI) mainly takes into account retail inflation data while formulating monetary policy. In its fifth monetary policy review for the fiscal, last month, the Reserve Bank kept interest rates unchanged, but held out a promise to cut them if the upside risks to inflation do not materialise.
The central bank has lowered retail inflation projection to 2.7-3.2 per cent for the second half of the current fiscal, citing normal monsoon and moderate food prices.