WPI and Food prices still do not converge albeit WPI’s decline in Nov

Newsroom24x7 Desk

rbi2New Delhi :  Wholesale prices fell again in Nov, but food prices and indices do not appear to be moving in the same direction yet. India’s wholesale prices fell for a 13th straight month in November, but contrary to a unidirectional convergence, the country is registering a sharp pickup in food prices. Adding to this is a pending wage hike for millions of government employees, which, combined together, inches in the route of worry for policymakers regarding potential inflationary risks.

Latest government data showed that the wholesale price index (WPI) has declined an annual 1.99 percent last month, driven down by tumbling oil prices. However, wholesale food prices in November gained 5.20 percent year-on-year, compared with a provisional 2.44 percent rise in October. Waiting for the data of November figures for the consumer price index (CPI) to be released by day end, each of the indices have their own tale to tell regarding the country’s economy. Consumer prices are tipped to have gained for the fourth consecutive month in November, rising an annual 5.4 percent on the back of a jump in food costs.

Higher food prices and anticipated higher government salaries are widely expected to build up into price pressures, which is anticipated to ties the hands of regulators, making it tougher for the central bank to keep retail inflation around 5 percent by March 2017. Economists opine that Reserve Bank of India (RBI) faces a tough challenge in meeting its medium-term CPI inflation target, suggesting that the rate-cutting cycle has now come to an end.

After easing monetary policy aggressively this year, the RBI kept the key repo rate on hold at 6.75 percent earlier this month. Global commodity scenario did rub off its effect on the Indian trade calls, and, While a crash in global commodity prices has tamped down prices in India, the central bank has not been relieved of its introspective measures as it remains worried about elevated household inflationary expectations.

Adding to it, is an additional conclusion of expected Federal Reserve hike of U.S. interest rates this week, as a result of which, the expectations of aggressive rate cuts in 2016 are very low.

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