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WPI expected to fall in June, fourth time in a row

LiveMint logoLiveMint 14-07-2017 Gireesh Chandra Prasad

New Delhi: Wholesale price index (WPI)-based inflation is expected to ease further in June for the fourth month in a row, aided by a fall in prices of food items, pulses and vegetables, economists said, ahead of data to be released later on Friday.

Economists believe that low WPI means hardly any pricing power at wholesale level, indicating further oversupply in the market.

WPI inflation slowed to 2.17% in May from 3.85% in the previous month. Retail inflation too has been slipping since March on account of a fall in prices of pulses and vegetables amid a bumper crop, forcing farmers to demand remunerative prices and stage protests across the country.

Softening inflation is set to put pressure on the Reserve Bank of India (RBI) to cut interest rates. Industrial output, which expanded at a modest 1.7% in May compared with a 3.1% expansion in the previous month, too is adding strength to the calls for an easier monetary policy.

The central bank had in its last monetary policy review on 7 June, kept key interest rates unchanged but lowered the statutory liquidity ratio—the portion of bank deposits that has to be invested in government bonds—by 50 basis points (bps) to 20%. One basis point is one-hundredth of a percentage point. RBI then maintained that it will wait and watch if inflation continues to hold the falling trend.

Although consumer price index (CPI)-based inflation is the anchor for the central bank’s policy decisions, WPI is used for accurately measuring gross domestic output without the impact of inflation.

Data released on Wednesday showed that CPI for the month of June had slowed to 1.54% in from 2.18% in May aided by lower food prices.

“The WPI inflation is expected to soften appreciably to 1.5% in June 2017 from 2.2% in May, led primarily by the anticipated disinflation in primary articles, on account of the weak trends being displayed by various food items and commodities,” said Aditi Nayar, principal economist with rating agency ICRA Ltd.

Core WPI inflation, which excludes price volatile commodities like food and oil, is expected to creep up modestly in June, said Nayar.

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