WPI inflation at 0% in November may encourage RBI to ease rates - Livemint

Except manufactured items, prices of which rose by 2.04%, inflation of primary products and the fuel group contracted by 0.98% and 4.91% respectively. Photo: Reuters

Wholesale inflation disappeared in November, meaning overall prices didn’t rise from their level a year ago with the industry department reporting zero inflation rate for the month. In October, WPI (Wholesale Price Index) inflation was 1.77%.

This may lead to the possibility of Indian economy heading for a deflation if inflation rate enters the negative zone starting December.

Except manufactured items, prices of which rose by 2.04%, inflation of primary products and the fuel group contracted by 0.98% and 4.91% respectively as vegetable prices fell by 28.57% and petroleum product prices came down after global crude prices fell sharply.

Crude is now trading at a five-year low in the early $60 levels (to the barrel).

Data released on Friday showed retail inflation measured by the Consumer Price Index (CPI) eased to 4.38% in November, compared with 5.52% a month ago, as vegetable prices fell by 6.97%.

However, factory output also contracted by 4.2%, the first time this is happening in seven months, strengthening the case for a rate cut to boost growth.

In its monetary policy review earlier this month, when the Reserve Bank of India (RBI) kept policy rates unchanged despite pressure from the government and industry lobbies to cut rates.

The central bank said that although November inflation is expected to show a further easing, “the favourable base effect that is driving down headline inflation will likely dissipate and inflation for December may well rise above current levels”.

“Over the next 12-month period, inflation is expected to retain some momentum and hover around 6%, except for seasonal movements, as the disinflation momentum works through. Accordingly, the risks to the January 2016 target of 6% appear evenly balanced under the current policy stance,” RBI said at the time.

The Urjit Patel panel, in a report on the possible path to be followed by the central bank on monetary policy, had recommended a retail inflation target of below 8% by January next year and 6% by January 2016.