April Whole­sale In­fla­tion Eases to 5.2%

The Economic Times - - Q - OUR BUREAU

The whole­sale in­fla­tion eased off in April from the pre­vi­ous month ow­ing to mod­er­a­tion in food prices, a con­trast to the rise in re­tail in­fla­tion that of­fers some respite from ap­pre­hen­sions that price rise could ac­cel­er­ate due to fore­cast of a de­fi­cient mon­soon this year. In­fla­tion based on the Whole­sale Price In­dex (WPI) fell to a low­erthan-ex­pected 5.2% from 5.7% in March, ac­cord­ing to data re­leased by the min­istry of com­merce and in­dus­try on Thurs­day. The de­cline was in con­trast to the rise in con­sumer in­fla­tion to a three-month high of 8.59% in April from 8.31% in March.

“In 2014-15, the course of in­fla­tion is ex­pected to hinge on the move­ment of food prices, ex­tent of neg­a­tive out­put gap and the strength of dis­in­fla­tion­ary im- pulses from pol­icy ac­tions,” said YES Bank chief econ­o­mist Shub­hada Rao, adding that in the short-term, in­fla­tion could rise be­cause of high food in­fla­tion. The weather depart­ment has fore­cast mon­soon rain­fall at 95% of the long-term aver­age – which qual­i­fies as a slightly de­fi­cient rain­fall but not drought – be­cause of the El Nino ef­fect. The re­sump­tion of monthly in­creases in diesel prices af­ter the con­clu­sion of the elec­tion process is also ex­pected to pro­vide an up­ward push to prices. The Re­serve Bank of In­dia is likely to keep in­ter­est rates on hold in its June 3 mon­e­tary re­view be­cause of the con­trast­ing move­ment of the two in­fla­tion gauges even as the cen­tral bank now gives more weight to con­sumer in­fla­tion. “As re­gards rates, we main­tain our view of an ex­tended pause on rates through 2014, but key to watch in the com­ing weeks/ months are the new govern­ment’s poli­cies – es­pe­cially those on the fis­cal and food econ­omy front,” Citi econ­o­mist Ro­hini Malkani said in a note on Thurs­day.

Busi­ness cham­bers called for ur­gent steps from the new govern­ment to con­tain in­fla­tion. “For the new govern­ment this will be the sin­gle-big­gest chal­lenge. We look for­ward to a com­pre­hen­sive ac­tion plan to tackle this sit­u­a­tion,” said Ficci pres­i­dent Sid­harth Birla.

Most exit polls have sug­gested a BJP-led coali­tion at the Cen­tre.

Food in­fla­tion eased to 8.64% in April, down from 9.9% in March, largely due to a steep de­cline in rise of veg­etable prices. Veg­etable in­fla­tion fell to 1.34% dur­ing the month from 8.8% in the pre­vi­ous month.

The whole­sale price in­dex for onions, which had notched up a three-digit rise about six-eight months ago, was down 9.76% in March from a year ago, con­tribut­ing to the over­all de­cline in rise of veg­etable prices.

The out­go­ing UPA govern­ment bat­tled high in­fla­tion right through its sec­ond suc­ces­sive term, one of the rea­sons for its ex­pected poor per­for­mance in the elec­tions. High in­fla­tion led to mon­e­tary tight­en­ing by RBI, which, in turn, con­trib­uted to the de­cline in GDP growth to sub-5% in the past two years.

Core in­fla­tion, a mea­sure of de­mand that the RBI watches closely, was steady at 3.4%, point­ing to weak de­mand in the econ­omy.

Weak de­mand and in­vest­ment in the econ­omy are seen as the prime rea­sons for low core in­fla­tion. How­ever, once the eco­nomic ac­tiv­ity picks up, sup­ply side con­straints will likely stoke up non-food man­u­fac­tured prod­ucts in­fla­tion. Re­mov­ing sup­ply-side bot­tle­necks will, there­fore, fig­ure among the key tasks of the new govern­ment.

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