New Delhi: Softening prices of food items, including vegetables, pulled down the WPI inflation to five-year low of 3.74 percent in August, but it may not bring relief to the industry as the RBI is insisting that "there is no point in cutting interest rates" to see prices go up again.
The August inflation, measured by Wholesale Price Index (WPI), declined from 5.19 percent in July, while the same was 6.99 percent in the same month last year.
The August WPI inflation is the lowest since October, 2009 when it stood at 1.8 percent.
According to the official data released today, inflation in the food segment saw a significant decline to 5.15 percent in August from 8.43 percent in July.
Vegetable prices contracted 4.88 percent in August, registering the third continuous month of decline. Onion prices were down by 44.7 percent.
Potato prices, however, were on the rise as inflation in the kitchen essential jumped to 61.61 percent in August from 46.41 percent in July.
With WPI inflation coming down to five-year low level, India Inc has raised the pitch for lowering of the interest rate to boost industrial output that slipped to four month low of 0.5 percent in July.
Speaking at a function in Mumbai, Reserve Bank Governor Raghuram Rajan, however, said prices across the board have to come down to enable the central bank to cut key rates.
"There is no point in cutting interest rates to see inflation picking up again," he said, adding that right now he thinks the RBI is continuing the way it proposed recently.
The RBI is targeting a retail inflation of 8 percent by January next year and six percent by January, 2016.
The retail inflation, measured on Consumer Price Index, (CPI) had also eased to 7.8 percent in August compared to 7.96 percent in July.
Taking a dig at the industry for its persistent demand of a cut in lending rates even when there is a price increase, Rajan asked them to bring down prices instead.
"When you do that then we will do that, we have no problem. Clearly, you will have no consensus on this," he said.
Reacting to the latest inflation data, India Inc asked the Reserve Bank of India (RBI) to cut interest rates and lower the cost of capital in its upcoming monetary policy review.
"With strong actions coming in from the Government, we are hopeful of a sustained moderation in inflation. Coming shortly before the Monetary Policy, this should also provide the necessary manoeuvring space to the RBI," said CII Director General Chandrajit Banerjee.
According to the data, inflation in the fruits eased to 20.31 percent.
While prices of protein rich items like egg, meat and fish contracted during the month, inflation in milk and pulses inched up to 12.18 percent and 7.81 percent, respectively, as compared to July.
Ficci President Sidharth Birla opined that it was imperative to continue working on the structural bottlenecks.
"Some announcements have already been made by the government on this front and we hope that the implementation part will get greater traction now," he said.
The price rise in manufactured goods, like sugar and edible oils, too eased to 3.45 percent in August, while it was 3.67 percent in July.
Inflation in the fuel and power segment, which include LPG, petrol and diesel, declined to 4.54 percent as compared to price rise of 7.40 percent seen in July.
Meanwhile, wholesale inflation based on final index for June has been revised upwards to 5.66 percent from the provisional estimate of 5.43 percent.
The August WPI data is also provisional, the government said.
