Declining for the fifth straight month, pace of wholesale inflation dropped to a six-year low of 0 per cent in November. The data reflects falling cost of production in the economy largely on the back of the sharp contraction in global prices of crude and commodities. It also reflects moderating food prices.
The data, however, shows a larger drop than the actual decline in prices owing to the favourable statistical illusion of a high base: Wholesale inflation growth in November 2013 was 7.5 per cent.
Wholesale food inflation was down to 0.6 per cent against 19.7 per cent in November 2013 with prices of cereals, rice, wheat, vegetables and onions falling. However, potatoes and milk continued to show high inflation. While potato prices grew at the rate of 34 per cent, the rate of rice in milk prices was 10 per cent. Rice and pulses too rose but at slower pace of 5.6 per cent and 4.4 per cent.
With global crude prices down nearly 40 per cent since June, wholesale inflation in fuels came in at minus 4.9 per cent against 11.08 per cent in November 2013.
The dip in producer prices comes days after consumer prices inflation abated to an 8-year low of 4.4 per cent.
Former Chief Economic Advisor Arvind Virmani told The Hindu that 0 per cent inflation shows that there was fundamental change in world economy. “The commodity boom is over, food prices peaked six months ago and the cycle has turned and global growth will be weak,” Mr. Virmani said. He said that all the economic data for India was reflecting a sharp drop in consumption, especially with real rural wages falling. There is a strong case for the interest rates to be lowered for spurring investments and growth, he said.
“India is an inadvertent beneficiary of the global oil price fall and so the Government must find a way of converting the triple bonus [of narrowing fiscal and current account deficits and falling inflation] to be had from it into higher growth for which Government must generate sustained investments by alleviating the infrastructure bottlenecks,” Aditya Birla Group Chief Economist Ajit Ranade told The Hindu .