WPI inflation rose 7.23 per cent in April. The government also revised upwards the inflation rate for March from 6.89 to 7.69 per cent, the highest in 2012.
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Manufactured products, which carry 64.97 per cent weightage in the WPI, rose only 0.5 per cent in May, translatiing into 5.02 per cent rate of inflation, while food inflation rose 10. 74 per cent. The fuel and power group, which has a 14.91 weightage, rose 1.0 per cent in May, while primary articles, which have a 20.12 weightage, and includes food, non-food and minerals groups, rose 0.1 per cent. In percentage terms, fuel group inflation rose to 11.53 per cent from 11.03 per cent, while primary articles went from 9.87 per cent in April to 10.88 per cent in May.
However, core inflation rose marginally to 4.86 per cent from 4.77 per cent, but still under marginally under the psychologically important 5 per cent mark, enough to act as a trigger for a rate cut. Earlier, RBI deputy governor Subir Gokarn had identified below-5 per cent core inflation as one of the two factors that gives it some "elbow room" for an interest rate cut, the other being lower crude prices.
An NDTV Profit poll had predicted inflation to rise to 7.5 per cent, while Thomson Reuters poll had projected WPI inflation to come in at 7.6 per cent over the same period last fiscal, and higher than the 7.23 per cent rate of inflation in April.
A separate Reuters poll last week showed the RBI is expected to cut its repo rate by at least 25 basis points from the current 8 per cent on June 18. The central bank in April cut its key interest rate by 50 basis points, or 0.5 per cent, more than the widely-expected 25 bps.
The May inflation number was also impacted by a depreciating rupee, which has made key imports, such as crude oil and capital goods more expensive, despite a fall in global crude prices. Last month, state-run oil marketing companies announced the steepest-ever price hike of Rs6.28 a litre, exclusive of local taxes, but later pared it by Rs 2.
However, with about a 1.09 weightage in the wholesale price index, petrol has only a minimal impact on headline inflation. Diesel, which is critical to the goods transportation industry, has a 50-75 basis point weightage in WPI.
Oil Minister S Jaipal Reddy has already ruled out any price hike for the highly-subsidised and inflation-sensitive fuel. Instead, he has recommended a hefty excise duty of up to Rs2.5 lakh on diesel-run cars, saying this would help close OMC’s under-recoveries and discourage “dieselisation of the economy”.
India’s economic growth slowed to 6.5 per cent in fiscal 2012, while GDP growth for the March quarter fell to 5.3 per cent. Other economic indicators have also been slowing in the current fiscal: industrial output in April grew a meager 0.1 per cent after contracting minus 3.1 per cent in March.
Core sector growth, a leading indicator of factory output, grew at 2.2 per cent in April, only marginally higher than the 2 per cent in March. The core sector – which comprises the key infrastructure industries of coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity – accounts for about 38 per cent of overall industrial output.
The lower industrial numbers have prompted calls for a rate cut, with industry saying that the slower rate of growth is a result of high interest rates that has forced it to put off investment plans.
WPI in 2012
Month Per Cent
March 7.69 (revised up from 6.89)
February 7. 36
(With inputs from Thomson Reuters)