As regards CPI inflation, a slower rate of price rise in fruit and vegetables and protein items, except for pulses, pulled the inflation to a new low of 3.66 per cent in August, as against 3.69 per cent in July.
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The dip in inflation adds to pressure on RBI Governor Raghuram Rajan to cut interest rates for a fourth time this year.
While food inflation has broadly remained in check despite below average summer monsoon rains, prices of some staples such as onions are racing up.
“The hardening of food prices in August 2015 relative to the precious month was on expected lines, led by onions and pulses, and in sync with the seasonal hardening observed in the past years”, ICRA Senior Economist Aditi Nayar said. A measure of core price pressures also eased.
But the BoE is still some way off raising interest rates, though some policymakers believe inflation could rebound quickly over the next couple of years and overshoot its 2 percent target, due to robust domestic growth.
Rate-setter Martin Weale recently said interest rates must rise “relatively soon” because inflation risks overshooting its two per cent target in the short to medium term.
Input prices plunged 13.8 percent from previous year after falling 12.6 percent in July.
An unexpected drop in the jobless rate to 5.1 percent and an upward revision in second quarter growth to 3.7% support calls for a hike as the labor market tighten and utilization is at its best level since the global financial crisis.
Rural CPI inflation in August stood at 4.47% compared to 4.44% in July, while in the urban areas it was 2.67% in August compared with 2.94% a month before. Retail inflation is forecast to ease, Bloomberg has predicted.
Meanwhile, WPI (wholesale price index) deflation deepened to -4.95% y-o-y, a record low for the series and down from July’s -4.1%.
It is, of course, possible to argue that WPI now is only reflecting the base effect of higher inflation in the comparable period the year before.
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The latest decline continues the real-terms boost to consumer spending power given by the tumbling cost of essentials and wages rising 2.8% year on year according to the latest figures.
