Inflation dips to 5-year low in August

Reserve Bank of India rules out rate cut

Softening prices of food items, including vegetables, pulled down the Wholesale Price Index-based (WPI) inflation to five-year low of 3.74 per cent in August, but it may not bring relief to the industry as the Reserve Bank of India (RBI) is insisting that “there is no point in cutting interest rates” to see prices go up again.

The August inflation, measured by Wholesale Price Index (WPI), declined from 5.19 per cent in July, while the same was 6.99 per cent in the same month last year.

The August WPI inflation is the lowest since October, 2009, when it stood at 1.8 per cent.

According to official data released on Monday, inflation in the food segment saw a significant decline to 5.15 per cent in August from 8.43 per cent in July.

Vegetable prices contracted 4.88 per cent, registering the third continuous month of decline. Onion prices were down by 44.7 per cent.

Potato prices, however, were on the rise as inflation in the kitchen essential jumped to 61.61 per cent in August from 46.41 per cent in July.

With WPI inflation coming down to five-year low level, India Inc has raised the pitch for lowering of interest rate to boost industrial output that slipped to four month low of 0.5 per cent in July.

The retail inflation, measured on Consumer Price Index, (CPI) had also eased to 7.8 per cent in August from 7.96 per cent in July.

“With strong actions coming in from the Government, we are hopeful of a sustained moderation in inflation. Coming shortly before the Monetary Policy, this should also provide the necessary manoeuvring space to the RBI,” said CII Director General Chandrajit Banerjee.

FICCI President Sidharth Birla opined that it was imperative to continue working on the structural bottlenecks.

“Some announcements have already been made by the government on this front and we hope that the implementation part will get greater traction now,” he said.

The price rise in manufactured goods, like sugar and edible oils, too eased to 3.45 per cent in August, while it was 3.67 per cent in July.

Inflation in the fuel and power segment, which include LPG, petrol and diesel, declined to 4.54 per cent as compared to price rise of 7.40 per cent seen in July.

Meanwhile, wholesale inflation based on final index for June has been revised upwards to 5.66 per cent from the provisional estimate of 5.43 per cent.

The August WPI data is also provisional, the government said.