Wholesale prices plunged for the ninth consecutive month in July on the back of a decline in food and fuel prices, raising prospects of a cut in interest rates to give a push to growth. This was the lowest level of the inflation based on wholesale price index (WPI) since 1976 and, according to economists, is the longest stretch of negative wholesale prices in the country since 1975. WPI inflation was in negative zone for 12 months between July 1975 and June 1976. Data released by the commerce ministry showed the wholesale inflation fell 4.05per cent in July compared to a decline of 2.40per cent for the previous month and 5.41per cent during the corresponding month of the previous year, reports The Times of India. The sharp dip in WPI comes close on the heels of the significant moderation in retail inflation in July and together the two data sets have fuelled expectations of a cut in interest rates. “Coupled with continuous negative prints in WPI, we think the recent drop in CPI (consumer price index) inflation will assuage the inflationary concerns of the central bank,” said Barclays economists Sidharth Sanyal and Rahul Bajoria. “We believe that the central bank is on course to deliver another 25 basis points repo rate cut in H2 2015, unless incoming figures — for example, the monsoon — spring major negative surprises in the coming months. Monsoon trends will be clear completely by September. On the balance of risks, our expectation is tilted towards a rate cut at the RBI’s next meeting at end-September, while the risk of another inter-meeting cut cannot be completely ignored,” they said. But Sanyal said the recent rupee volatility due to the weakening of the Chinese currency is likely to be a hurdle for an early delivery of the rate cut. Food inflation fell 1.16per cent year-on-year in July, while vegetable prices fell 24.52per cent during the month. The price of pulses continued to remain a worry as it rose 35.75per cent in July.
