Inflation in protein-rich food like milk, egg, meat, fish, vegetables and fruits saw a drop during the month.
Deflation persisted for the fifth consecutive month as wholesale price index (WPI) based inflation fell to a 65-week low of (-) 2.33% in March on the back of lower oil, food and manufactured items giving further room for the Reserve Bank of India (RBI) to cut rates.
The inflation number for March is lower than the -2.1% reported in February 2015, recording a year-on-year disinflation for the fifth consecutive month on the back of falling oil and global commodity prices. The retail (CPI) inflation declined to 5.2% in March 2015 from 5.4% in February 2015 benefiting from an easing of food inflation. However, lot will depend on the monsoon and its impact on food prices.
Inflation in protein-rich food like milk, egg, meat, fish, vegetables and fruits saw a drop during the month.
The retail inflation trajectory reversed in December 2014 and inched up to 5.4% in February 2015, a four-month high due to high food and beverages inflation. However, it fell to 5.2% in March 2015.
Rating agency India Ratings, a Fitch company, said in a release, "This is the fifth consecutive month in which WPI has recorded deflation. We expect RBI to cut the repo rate by 50 basis points in FY16. The impact of unseasonal rains on food prices particularly on fruits and vegetables will put some pressure on inflation over the forthcoming months. The agency nevertheless believes retail inflation will remain within the glide path of RBI in the near term as global commodity prices including crude will remain soft and manufacturing sector will have low pricing power."
Industrial recovery continues to be fragile and manufacturers are unlikely to exercise their pricing power. India Ratings said in its report, "Manufacturing recovery has remained uneven across user-based segments as also on monthly basis. Consumer durables output contracted 3.4% in February 2015 and 13.3% so far in FY15. With the inception of basic and capital goods, the performance of other segments has also been tepid so far in FY15."
The State Bank of India's economic research department said in a note, "We believe next rate cut in June by RBI at 25 basis points is a distinct possibility as CPI numbers for April and May will surprise on the downside. "Beyond that, any possibility of rate cut will only depend on monsoon trajectory and hence food prices as core CPI will continue to provide cushion to headline CPI."
Rating agency ICRA was a bit skeptical about the fall in inflation. In a report, it said, "The sub-zero print for core (WPI) inflation in March 2015 would have a limited impact on the timing and magnitude of rate cuts by the RBI. With the central bank likely to place far greater emphasis on the unfolding trajectory and average level of CPI inflation than the path charted by the WPI, which would be influenced to a larger extent by evolving trends in global commodity prices, we continue to expect repo rate cuts to be limited to 50 bps in the remainder of this calendar year."
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