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Wholesale inflation falls to historic low of (-)4.05% in July

The data mirror the consumer-price figures released Wednesday, which also showed a sharper-than-expected fall in the benchmark inflation rate to an eight-month low of 3.78% in July.

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Wholesale prices fell 4.05 percent in July from a year earlier, the Commerce Ministry said in a statement on Friday, the steepest fall in data going back to 2005.

Food Articles inflation declined to -1.16 percent versus 2.88 percent (MoM) in the WPI basket.

As such, the headline inflation has been heading south since June 2014 when it stood at 5.66 per cent, subsequently falling to 1.66 per cent in October, turning zero in November and then entering into the negative zone in January 2015 when it stood at -0.95 per cent. The rebound was led by a turnaround in the manufacturing sector, which rose 4.6% in June compared to 2.9% growth in the year earlier period.

Vegetable prices inflation contracted 24.52 per cent against a contraction of 7.07 per cent in June.

“Admittedly, the WPI rate of inflation is becoming less important for India’s policymakers, as the CPI rate includes a wider range of goods and services and is easier for global comparisons”, said Shilan Shah, India economist at research firm Capital Economics. On August 4, Rajan said that the central bank may cut interest rate even out of the policy cycle depending on how macroeconomic indicators play out. He said it remains to be seen as to how monsoon develops and what shall be its future impact on food prices as an uneven rainfall in some regions of the country may hit crops and could pile pressure on food inflation in the future.

However, pulses got dearer by 35.75 per cent as against 33.67 per cent in the previous month.

The manufactured product index inflation was (-)1.47 per cent as against (-)0.77 per cent last month. Prices eased for sugar, beverage, tobacco and tobacco products.

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The downward inflation trajectory and lowering of base rate by banks augurs well for India Inc’s profitability for the July-September quarter (Q2), analysts said.

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