INFLATION IN NEGATIVE ZONE 16th MONTH IN ROW

Deflationary trend continued for the 16th month in a row as wholesale prices declined by 0.91 per cent in February, prompting India Inc to press for a rate cut by RBI to boost factory output, which has been contracting since November. Subdued prices of certain food items and petroleum products kept the WPI (Wholesale Price Index) inflation at (-)0.91 per cent in February as against (-)2.17 per cent a year ago. It was (-)0.9 per cent in January. This is the 16th consecutive month since November 2014 when the deflationary pressure has persisted. Food inflation stood at 3.35 per cent in February compared with 6.02 per cent in January, showed official data, which was released today. In view of declining inflation and negative industrial outlook, the industry stepped up its demand for an interest rate cut by Reserve Bank in its first bi-monthly monetary policy for 2016-17 on April 5. "A further cut in the policy rate at this juncture and its transmission by the banks in the form of lower lending rates would benefit both, companies and consumers alike, and impart some momentum to the still weak investment and consumption cycle," Ficci said. Meanwhile, Assocham too pressed for a rate cut arguing the government has fulfilled its commitment of sticking to the fiscal consolidation path by deciding to keep the deficit for 2016-17 at 3.5 per cent of GDP. "Therefore, it gives the room to RBI to ease liquidity and reduce interest rates to dispense with deficient demand in the economy," Assocham said. The inflation print in the fuel and power segment was (-)6.40 per cent and for manufactured products, it read (-)0.58 per cent in February. 

RBI mainly looks at retail inflation, data for which is expected later in the day, while firming up monetary policy stance. It also takes into account industrial production numbers, which as per the latest reading fell for a third straight month, contracting 1.5 per cent in January due to poor showing of manufacturing. ICRA Senior Economist Aditi Nayar said: "Assuming an average crude oil price of USD 40 per barrel in 2016-17 and modest depreciation in the INR-USD, WPI inflation is expected to average +3 per cent in the coming fiscal, as compared to a 2.5 per cent Y-o-Y decline in 2015-16." As per the data released today, inflation in pulses and onion eased to 38.84 per cent and (-)13.22 per cent, respectively. The rate of price rise in the case of vegetables was (-)3.34 per cent, and for fruits, it stood at (-)1.95 per cent. Price rise in potato was (-)6.28 per cent while that of egg, meat and fish came in at 3.47 per cent. The December WPI inflation has been revised to (-)1.06 per cent from the provisional estimate of (-)0.73 per cent. "Budget 2016-17 has given due focus on boosting demand and encouraging domestic value addition. RBI should supplement the efforts of the government to strengthen demand and continue with its accommodative stance in the forthcoming monetary policy," Ficci said.