India’s wholesale price inflation slowed in May from a year earlier on the back of falling food costs, indicating subdued price pressures in the pipeline and adding to expectations that the central bank may lower interest rates in coming months.
Key Points
- Wholesale price index rises 2.17% in May from a year earlier, compared with a median estimate of 2.9% in a Bloomberg survey of economists.
- Food prices were down 2.27%, year-on-year, Commerce Ministry says in a statement.
- Fuel, power, lighting prices rose 11.69%.
- Last month, India revised the base year for the wholesale price index and brought it in line with the consumer price index.
Big Picture
Earlier this week, data showed India’s consumer price inflation for May slowed to its lowest on record. That came after the Reserve Bank of India cut its inflation forecast to 2% to 3.5% for the fiscal first half from a previous estimate of an average of 4.5%. Slowing inflation will give the Reserve Bank of India more headroom to ease monetary policy in the months to come as growth slows in Asia’s third-largest economy and demand for credit languishes at decade lows.
Central bank governor Urjit Patel kept the benchmark repurchase rate unchanged at 6.25% in a policy review last week, saying the easing of price pressures may be transient.
Economist Takeaway
“The WPI inflation for May 2017 surprised on the downside, in sync with the CPI inflation, primarily on account of a deeper-than-expected disinflation for food items and crude petroleum and natural gas,” said Aditi Nayar, principal economist at ICRA Ltd.
