The industry has stepped up its demand for a rate cut
Declining prices of vegetables and fuel items pulled down the inflation to zero level in November, the lowest in about five and half years, exerting pressure on RBI to cut rates to boost growth.
The Wholesale Price Index (WPI) based inflation was at 1.77 per cent in October and 7.52 per cent in November 2013.
As per data released by the government today, the WPI inflation remained flat mainly on account of falling prices of vegetables, especially onion, edible oil, petrol and diesel.
In view of the moderation in WPI inflation, which has been on declining trajectory for six months, the industry has stepped up its demand for a rate cut.
The Reserve Bank has maintained a status quo in interest rate since January. The RBI factors in retail inflation while formulating its monetary policy.
In its policy earlier this month, RBI Governor Raghuram Rajan had hinted at a rate cut early next year if inflation continued to decline and government took steps to contain fiscal deficit.
Food inflation, which is on decline since May, fell to nearly three year low of 0.63 per cent.
Inflation in fuel and power segment fell 4.91 per cent, the lowest level since 2009.
This is probably the first time when WPI inflation has hit the exact zero level. The last time WPI was lower than this was (-)0.3 per cent in July 2009.
Onion price contracted 56.28 per cent as compared to a contraction of 59.77 per cent in October. In case of vegetables, the contraction was 28.57 per cent.
Industry chamber Assocham in its reaction to WPI numbers made a strong pitch for an interest rate cut to boost demand for industrial goods and push economic growth.
As per the data, prices of protein rich items of egg, meat and fish rose 4.36 per cent during November, while inflation in potato stood at 34.10 per cent.
Inflation in manufactured products, like sugar, edible oils, beverages and cement, fell to 2.04 per cent in November as against 2.43 per cent in the previous month.
Retail inflation data for November showed a record fall to 4.38 per cent.
Meanwhile, ICRA senior economist Aditi Nayar said: "With monetary policy focused on the medium term trajectory of CPI inflation, lower than expected WPI print is unlikely to hasten rate cuts".
The decline in both retail and WPI inflation for November coupled with contraction of industrial production to 4.2 per cent in October, will put pressure on RBI to lower interest rates to boost growth.
Finance Minister Arun Jaitley too on many occasions had nudged the RBI to cut rates. The issue also figured during a debate in the Lok Sabha last week.
RBI Governor Raghuram Rajan has emphasised that interest rate cut by itself would not lift the economy.
Industry has been demanding easing of interest rates to boost growth, which has slumped to 4.7 per cent in 2013-14. The economy is estimated to grow in the range of 5.4-5.9 per cent this fiscal.
