Wholesale inflation cools to 5-month low of 2.17 per cent

NEW DELHI: India’s wholesale inflation eased to a five-month low in May, boosting hopes of interest rate cuts as consumer price inflation has fallen to a five-year low. Inflation as measured by wholesale price index (WPI) eased to 2.17% in May after hitting 3.85% in April, data released by the commerce and industry ministry showed on Wednesday. Data released last week showed that inflation measured by consumer price index (CPI) for May stood at 2.18%, its lowest since 2012.

With a normal monsoon expected to keep prices moderate going ahead, experts believe there is room for interest rate cuts to boost the economy. “Lower IIP (index of industrial production) growth and continuous decline in both WPI and CPI-based inflation has provided some space for monetary easing,” said Devendra Kumar Pant, chief economist at India Ratings & Research, a Fitch Group company. He said a rate cut may increase demand for consumer durables.

The WPI food index turned negative in May with wholesale food prices falling 2.27% in the month compared with a 1.16% rise in April with prices of most items except milk, which firmed up 4.47%, slipping. Wholesale inflation eased on cereals, paddy and wheat while the decline was steeper for vegetables, potato and onion. Aditi Nayar, principal economist at credit rating agency ICRA, said, “The impact of the distribution of rainfall and rise in MSPs (minimum support prices) on the sowing pattern, and the extent to which prices are revised amid the transition to GST (goods and services tax), would be some of the key factors influencing inflation from July 2017 onward.”

ICRA expects WPI-based inflation to decline to less than 2% in June, led by the base effect. Madan Sabnavis, chief economist at CARE Ratings, said the agency expected the WPI inflation to remain “in the range of 3% for next couple of months”.

BROADBASED DECLINE
The wholesale price index (WPI) is based on the revised base of 2011-12, which the government changed last month to get an updated picture of the economy. The index comprises three main categories — primary articles that include food items, manufactured products, and fuels.

Wholesale inflation rate was lower in all the categories in May — primary articles at -1.79% against 1.82% in April, fuel down to 11.69% from 18.52%, and manufactured goods at 2.55% against 2.66% in April. Experts said low inflation in the case of food articles may benefit consumers, but it could dent farm incomes and may impact rural demand. “Going forward, while a good monsoon is likely to provide support to FY18 growth, inflation trend especially for food will have implications for rural demand,” said Pant of India Ratings & Research.