April Wholesale Inflation Eases to 5.2%
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.