Inflation Dips To Decadal Low, Pressure On RBI To Cut Rates

14/08/2015 2:24 PM IST | Updated 15/07/2016 8:25 AM IST
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Indians buy vegetables at a market in Ahmadabad, India, Tuesday, Oct. 14, 2014. India's benchmark inflation rate fell to a five year low of 2.4 percent in September as food and vegetable prices dropped, the Commerce Ministry said Tuesday. (AP Photo/Ajit Solanki)

Ahead of India's 69th Independence Day and the looming pall of yet another wasted Parliament session, the government can take some solace from wholesale price inflation registering its steepest decline since 2005.

This was the ninth straight month for which inflation declined, mainly driven by weak food and fuel prices and will put pressure on RBI governor, Raghuram Rajan, to cut lending rates ahead of a 29th September review.

The Wholesale Price Index (WPI) data, released on Friday, fell more rapidly than what experts anticipated. Economists polled by Reuters expected it to fall 2.8% from prices same time last year with, a similar survey of economists by Bloomberg anticipating a 2.9% dip.

The wholesale food prices fell 1.16% year-on-year, while fuel prices fell 12.81% from a year ago, government data showed.

The RBI kept rates unchanged at 7.25% this month even though the government and industry have been urging for lower cost of borrowing.

The WPI, which tracks a broader basket of goods, follows a fall in retail inflation and rise in industrial output to a four-month high in June. Data publicised earlier this month showed that retail inflation slowed to a record low of 3.8% year-on-year in July, significantly lower than 5.4% in the previous month, on the back of slowing food prices and prices last year being extremely high.

According to PTI, industrial output growth rose 3.8% in June, faster than downwardly revised 2.5% expansion in May. The rebound was led by a turnaround in the manufacturing sector, which rose 4.6% in June compared to 2.9% growth in the year earlier period. The turnaround in consumer goods and consumer durables also augured well but the capital goods sector contracted after seven months, pointing to weakness in investment conditions.

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