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HomeBusinessInflation drops to 5-year low of 1.77pc, India Inc wants rate cut

Inflation drops to 5-year low of 1.77pc, India Inc wants rate cut

Driven by softening prices of fuel and food items, the WPI inflation cooled to a five year low of 1.77 per cent in October raising hopes of rate cut by the Reserve Bank next month to boost economic growth.

The decline in Wholesale Price Index (WPI) based inflation from 2.38 per cent in September, follows fall in retail inflation which hit a record low of 5.52 per cent in October.

The WPI inflation, which fell for the fifth month in a row, was at 7.24 per cent in October 2013.

As per the official data released, food inflation fell to a nearly two-and-half year low of 2.7 per cent. Food inflation is on decline since May.

Inflation in the fuel and power segment which include LPG, petrol and diesel declined to 0.43 per cent as compared to price rise of 1.33 per cent in September.

With the international crude prices declining further to a four year low of USD 77 a barrel, the inflation in fuel segment is likely to soften in the coming days.

Encouraged by the decline in inflation, India Inc has stepped up its demand for a cut in interest rates by the RBI in next bi-monthly monetary policy on December 2.

“Alleviated inflation creates room for a more accommodative stance from the central bank in terms of rate reduction in the policy to be announced next month,” trade body FICCI said.

Industry has been demanding a rate cut to boost growth which had slumped to 4.7 per cent in 2013-14. In the current fiscal, the growth is estimated to be between 5.4-5.9 per cent. It will, however, be much below the potential growth rate of 8-9 per cent.

The RBI, which factors in retail inflation while formulating its monetary policy, has maintained status quo in interest rate since January.

Commenting on inflation, ICRA Senior Economist Aditi Nayar said: “Notwithstanding the sharper-than-expected fall in the WPI, we expect the RBI to remain on hold in the next two policy meetings”.

As per the WPI data, the rate of price rise in onion contracted 59.77 per cent in October as compared to a contraction of 58.12 per cent in September.

In case of vegetables, the contraction was 19.61 per cent, while in protein rich items of egg, meat and fish it was 2.58 per cent in October.

Inflation in potato stood at 82.11 per cent, against 90.23 per cent in September.

Inflation in manufactured products like sugar, edible oils, beverages and cement, fell to 2.43 per cent in October as against 2.84 per cent in the previous month.

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