INFLATION DOWN TO ZERO

tradingeconomics.com

Declining prices of vegetables and fuel items pulled down the inflation to zero level in November, the lowest in about five and half years, exerting pressure on RBI to cut rates to boost growth. The Wholesale Price Index (WPI) based inflation was at 1.77 per cent in October and 7.52 per cent in November 2013. As per data released by the government today, the WPI inflation remained flat mainly on account of falling prices of vegetables, especially onion, edible oil, petrol and diesel.
In view of the moderation in WPI inflation, which has been on declining trajectory for six months, the industry has stepped up its demand for a rate cut. The Reserve Bank has maintained a status quo in interest rate since January. The RBI factors in retail inflation while formulating its monetary policy. In its policy earlier this month, RBI Governor Raghuram Rajan had hinted at a rate cut early next year if inflation continued to decline and government took steps to contain fiscal deficit.
Food inflation, which is on decline since May, fell to nearly three year low of 0.63 per cent. Inflation in fuel and power segment fell 4.91 per cent, the lowest level since 2009. This is probably the first time when WPI inflation has hit the exact zero level. The last time WPI was lower than this was (-)0.3 per cent in July 2009. Onion price contracted 56.28 per cent as compared to a contraction of 59.77 per cent in October. In case of vegetables, the contraction was 28.57 per cent.