As inflation sinks to 8-mth low, will RBI now cut rates?

Inflation in the 'fuel and power' basket in December slumped to 8.38 per cent, nearly half of 16.28 per cent.

Illustration: Uttam Ghosh/Rediff.com

Softening prices of fuel and some food articles pulled WPI inflation to a 8-month low of 3.80 per cent in December raising hopes for a rate cut by the RBI.

This is the second consecutive month of decline in Wholesale Price Index (WPI)-based inflation.

The inflation was 4.64 per cent in November, 2018 and 5.54 per cent in October.

In December 2017, WPI inflation stood at 3.58 per cent.

According to the government data released on Monday, deflation in food articles stood at 0.07 per cent in December, against 3.31 per cent in November.

Vegetables continued their deflationary trend for six months and was at 17.55 per cent in December, compared to 26.98 per cent in the previous month.

Inflation in the 'fuel and power' basket in December slumped to 8.38 per cent, nearly half of 16.28 per cent in November.

This was on account of lowering of prices of petrol and diesel through December.

Individually, in petrol and diesel inflation was 1.57 per cent and 8.61 per cent, respectively, and for liquified petroleum gas (LPG) it was 6.87 per cent during December.

"The continuing deceleration in the growth of WPI and softening of global fuel prices provide ample opportunity to MPC (monetary policy committee) to cut down policy rate at earliest which will kick start investment and revival in overall industrial growth," Assocham said.

Inflation in manufactured items slowed to 3.59 per cent in December, from 4.21 per cent in November.

Among food articles, potato prices became cheaper substantially with inflation at 48.68 per cent in December, as against 86.45 per cent in November.

Inflation in pulses stood at 2.11 per cent, while in 'egg, meat and fish' it was 4.55 per cent.

Onion witnessed deflation of 63.83 per cent in December, compared to 47.60 per cent in November.

Deflation in fruits was at 3.69 per cent in December, as against 2.49 per cent in the previous month.

The 3.80 per cent inflation is the lowest in 8 months, and a lower inflation than this was last seen in April at 3.62 per cent.

Data for retail or consumer price index-based inflation would be released later in the day.

The Reserve Bank of India (RBI) mainly takes into account retail inflation data while formulating monetary policy.

In its fifth monetary policy review for the fiscal, last month, the Reserve Bank kept interest rates unchanged, but held out a promise to cut them if the upside risks to inflation do not materialise.

The central bank has lowered retail inflation projection to 2.7-3.2 per cent for the second half of the current fiscal, citing normal monsoon and moderate food prices.