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Inflation eases to 8-month low of 5.05% in January

14 February, 2014

India’s headline inflation eased to an eight-month low in January as food prices moderated last month, providing a leeway to the central bank to look at lowering interest rates in the next monetary policy review scheduled on April 1.

The annual rate of wholesale price index (WPI) inflation stood at 5.05 per cent in January (over January 2013) compared with 6.16 per cent (provisional) for the previous month and 7.31 per cent during the corresponding month of the previous year. Build-up inflation rate in the financial year ending March 31, 2014, so far, is 5.17 per cent compared with a build-up rate of 5.78 per cent in the corresponding period of the previous year.

Primary articles, which account for around a fifth of WPI, saw prices decline as food prices for fruits & vegetables, maize, ragi, etc moderated even as price of poultry chicken, pork, egg, etc rose.

The index for non-food articles group rose marginally over December 2013 due to higher price of guar seed, raw cotton, etc. Price of logs & timber, flowers, raw silk besides tobacco, cotton seed and raw rubber declined. The index for minerals declined marginally due to lower price of barytes and crude petroleum. However, the price of copper ore, steatite, zinc concentrate and chromite moved up.

Fuel & power, which has a weightage of around 15 per cent in the index, rose in January from December due to higher price of LPG, aviation turbine fuel and petrol, furnace oil, kerosene, high speed diesel and bitumen.

Manufactured products, which dictate the WPI with around two-thirds of the total weightage, rose marginally last month as prices of chemicals, basic metals, machinery & tools increased even as prices declined for manufactured food articles and edible oils.

The moderating WPI inflation comes on the back of lower consumer inflation too, which eased to a two-year low of 8.79 per cent in January, government data showed early this week.

Both the indicators are important as WPI is currently the main trigger for monetary policy decisions while the central bank is looking to make consumer inflation the key determinant of policy moves.

Last month RBI governor Raghuram Rajan surprised the markets by raising the repo rate by 25 basis points to 8 per cent against expectations of maintaining status quo. The central bank based its decision on the high consumer inflation. Even though consumer inflation eased to a three-month low of 9.87 per cent in December as vegetable prices fell as compared to 11.16 in November, it is much above RBI’s comfort zone.

(Edited by Joby Puthuparampil Johnson)


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Inflation eases to 8-month low of 5.05% in January

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