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WPI dips to historic -4.05%; industry demands rate cut

Deflationary trends continued for the ninth month in a row in July, pulling down WPI inflation to historic low of (-)4.05%, on cheaper commodities as India Inc raised pitch for a rate cut by RBI ahead of its September 29 review.

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Deflationary trends continued for the ninth month in a row in July, pulling down WPI inflation to historic low of (-)4.05%, on cheaper commodities as India Inc raised pitch for a rate cut by RBI ahead of its September 29 review.

The WPI number follows retail inflation data which had slipped to a record low of 3.78% in July.

Describing the softening of prices as a "positive sign", Finance Minister Arun Jaitley said inflation is under control and all macroeconomic indicators are extremely encouraging.

The overall wholesale price index-based (WPI) inflation was (-)2.40% in June, government data showed today. It has been in the negative zone since November 2014. A year ago in July 2014, inflation was 5.41%.

During the month, pulses, milk, edible oil, egg, meat and fish turned dearer.

When asked whether it was time for the Reserve Bank to cut interest rate, Jaitley parried the question, saying in a lighter vein, "I am sure we all know the relationship now." India Inc, however, was more candid and stepped up its demand for rate cut, saying it will propel domestic demand and boost investments and growth.

"The distinct downturn in both retail and headline inflation and soft inflationary scenario make a strong case for RBI to resume its accommodative policy stance and reduce interest rates even before the next monetary policy," CII Director General Chandrajit Banerjee said.

RBI Governor Raghuram Rajan, after the monetary policy announcement on August 4, had said that the central bank may cut interest rate even out of the policy cycle depending on how macroeconomic indicators play out.

RBI mostly tracks the consumer price inflation for its policy decisions and its next review is due on September 29.

Inflation in food items, especially rice, vegetables and fruits, eased at a wholesale level.

Overall wholesale inflation in the food category was (-)1.16% as compared to 2.88% in June.

Vegetable prices declined 24.52%, with potato prices slumping 49.27%.

Inflation in onion was (-)0.49% in July, against 18.54%in June.

However, pulses got dearer by 35.75% as against 33.67% in the previous month.

Inflation in fuel and power category stood at (-)12.81% in June.

The manufactured product index inflation was (-)1.47% as against (-)0.77% last month. Prices eased for sugar, beverage, tobacco and tobacco products.

Chief Economic Advisor (CEA) Arvind Subramanian said the latest inflation data shows a "big structural shift in underlying process of inflation and that is something (which) is very encouraging".

Since RBI wanted more clarity over inflation numbers in the months to come, it kept policy rate unchanged during its policy review earlier this month.

RBI kept the repo rate, at which it lends to banks, unchanged at 7.25% and the cash reserve ratio, the proportion of deposits banks have to park with the central bank, at 4 per cent.

The IIP data for June showed the industrial output grew 3.8%. Also, the indirect tax collections in April-July period was up 37%

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