India's Wholesale Price Index at 5-year low

Indias Wholesale Price Index at 5-year low

Wholesale price inflation was riding at over six per cent in May.

By (AFP)

Published: Sun 16 Nov 2014, 12:50 AM

Last updated: Sat 4 Apr 2015, 3:19 AM

India’s inflation rate has hit a new five-year low, official data showed on Friday, fanning speculation the central bank could finally start cutting interest rates and spur stumbling economic growth.

Inflation as measured by the Wholesale Price Index or WPI, which contains India’s biggest basket of goods, fell to 1.77 per cent in October from a year earlier — marking a second straight five-year low — as the fuel-import-reliant nation benefited from falling global oil costs.

The decline in India’s annual wholesale inflation rate, which stood at 2.38 per cent in September, was helped by falls in prices of both oil and food, including onions — a staple in Indian cooking. Wholesale price inflation was riding at over six per cent in May.

Businesses have been clamouring for a cut in India’s steep interest rates which they say have discouraged investment and consumer spending and mired the country in its longest period of sub-five-per cent growth.

The hawkish central bank has resisted such appeals, determined to break the back of inflation, a chronic problem in India that causes misery for hundreds of millions of the country’s deeply poor citizens.

The latest wholesale price data came two days after official figures showed consumer price inflation had dropped to 5.52 per cent last month, below the central bank’s six-percent goal for January 2016, and down sharply from double-digits last year. With inflation falling faster than expected, some economists say the central bank could cut rates as early as the next monetary policy meeting set for December 2.

“An early start to the Reserve Bank of India’s policy loosening cycle still looks on the cards, possibly as soon as next month,” said Capital Economics analyst Shilan Shah in a research note ahead of the latest data.

But many economists still worry that when the low year-ago base effect drops out of the price data, inflation will again start rising.

“We still expect the Reserve Bank of India to remain on hold as risks remain to the six-percent inflation target for January 2016,” said Goldman Sachs economist Tushar Poddar.

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