Softening food prices helped ease retail as well as wholesale inflation in October, raising hopes that RBI may go in for another rate cut in its monetary policy review next month.
Retail or CPI inflation dipped to 14 month low of 4.20 per cent in October, while the one based on wholesale prices or WPI fell for the second consecutive month to 3.39 per cent in October.
While Consumer Price Index based retail inflation was at 4.39 per cent in September, the one tracking Wholesale Price Index was at 3.57 per cent.
Retail food price inflation in October was 3.32 per cent, lower than 3.88 per cent recorded in September. The WPI food inflation basket too showed moderation with inflation at 4.34 per cent in October, as against 5.75 per cent in September.
The easing inflation prompted industry chamber Ficci to demand reduction in interest rate to support investor as well as consumer sentiment.
"An immediate 0.50 per cent cut in repo rate should be considered by RBI as well as some measures may be introduced to provide easy finance for sectors like housing, automobiles and consumer durables," Ficci President Harshavardhan Neotia said.
The all-powerful Monetary Policy Committee headed by RBI Governor Urjit Patel last month cut benchmark interest rates by 0.25 per cent to 6.25 per cent. The next RBI policy review is on December 7.
While Patel had signalled more tolerance towards inflation, the easing in CPI data was in line with the RBI's inflation target of 5 per cent for March 2017.
ICRA Senior Economist Aditi Nayar said the demonetisation of Rs 500 and Rs 1,000 notes could further lower inflation in the coming months.
"The temporary shock to economic activity, including predominantly cash based transactions at mandis as well as construction activity, would have an impact on wholesale prices from mid-November 2016 onward," Nayar said.
Industry demand for rate cut comes after data showed that factory output in the April-September period declined by 0.1 per cent compared to 4 per cent growth in the year-ago period.
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