The annual rate of wholesale (based on Wholesale Price Index (WPI)) and retail (based on Consumer Price Index (CPI)) inflation came in at negative 2.4% and 5.4%, respectively in June 2015. ndia Ratings and Research's (Ind-Ra) expected WPI and CPI inflation at negative 2.0% and 5.2%, respectively. Higher CPI inflation in June 2015 is due to a combination of diminishing base effect and rising prices of some protein-rich items such as pulses, milk and meat. CPI inflation had declined to 7.3% in June 2014 from 8.9% in May 2014.
The base effect will wane further in the coming months, Ind-Ra opined. For WPI, it will kick in from August 2015 and for CPI it will be more pronounced from September 2015. Ind-Ra expects the average retail/consumer and wholesale inflation to grow 5.5% and 0.4% in FY16 (FY15: 5.9% and 2.0%).
Ind-Ra expects the growth-inflation dynamics to remain in the comfort zone of the Reserve Bank of India (RBI) despite the likelihood of a rise in inflation during 2HFY16. The agency believes that there is still some room for RBI to go for another 25bp cut in policy rates in FY16. This is however subject to proactive food management by the government to control the inflation arising out of sub-par monsoon.
The progress of 2015 monsoon in June 2015 was good and aggregate rainfall till July 1, 2015 was 13% above normal. July is the most crucial month for sowing of kharif crops and rainfall in the week of 2-8 July 2015 was 51% below normal, resulting in seasonal rainfall till July 8 being 4% below normal. Only nine meteorological sub-divisions (out of 36) received deficient rainfall (over 20% less than normal). Last year during this period, 29 meteorological subdivisions had received deficient or scanty rainfall.
Non-food articles under the primary articles category in WPI series had been witnessing deflation since October 2014. However in June 2015, an inflation of 1.1% was recorded. Although among its key constituents, fibres and minerals are still showing double digit deflation, oilseeds recorded 2.6% inflation after a gap of four months of deflation.
Fuel prices have shown deflation since November 2014 due to the collapse of commodity prices especially crude. Brent Crude after touching a low of USD 48.07 a bbl in January 2015 had increased to USD 60.65 a bbl in May 2015. However, it has again dropped to USD 57.19 a bbl currently due to growth concerns in China lately.
Although the benefit of soft crude prices will begin to wane September 2015 onwards as the base effect comes into play, Ind-Ra expects the benign oil prices to keep fuel as also overall inflation within the manageable level of RBI during FY16.
