January WPI inflation declines to 5.05 per cent: Is good news in store ahead?

With the Wholesale Price Inflation (WPI) coming down to an eight month low of 5.05 per cent, smiles are back in the industry and market.January WPI inflation declines to 5.05 per cent

Undoubtedly driven by fall in the prices of food and vegetable items, the latest WPI figures augurs for all well – but is good news really in store for us?

Not really, because the core inflation (read non-food inflation) has climbed up to 3 per cent in January if compared to 2.8 per cent in December.WPI was 6.16 per cent in December.

What does it suggest?

Nothing much, or almost everything. The latest cooling down effect may be a good news prima facie but those correlating it with the Reserve Bank of India (RBI) cutting down policy rates in its next monetary policy outing are playing fool’s paradise.

3 per cent is relatively big figure to ignore and especially when the central bank and particularly, the Urjit Patel Committee report speak about containing inflation (read CPI) to comfortable limit of 4 per cent. This would only require more of rate hikes rather than any cuts.

The Consumer Price Index (CPI) also declined to 10 per cent in January, due to lower food prices but the Manufactured Products Index (MPI) ascended up to 2.76 per cent.

Inflation targeting is here to stay and even economist of repute such as Ajay Shah has views of similar kind further tightening or maintenance of status quo in the policy rates makes the issue.

As he says RBI would be better off having IT as an inflation anchor for the economy rather than just being contended in pegging rupee to the US Dollar.

Times ahead can be tough but dreams are not achieved just sleeping on bed full of roses.

Ashish Pandey

I am a business and finance journalist who is currently employed at Financial Express and previously at Zee News. My areas of interest include business and foreign policy. You can reach me on Twitter at @ashuvirgo1984 or @eFundsPlus.

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