Mumbai - India’s wholesale prices dropped for the fifth straight month in March thanks to lower food and manufacturing costs along with slumping global oil prices, government data showed Wednesday.
The Wholesale Price Index (WPI), an inflation indicator which measures the biggest basket of goods, slipped a sharper-than-expected 2.33 percent from a year earlier.
The figure follows a 2.06 percent decline in February and was greater than a 2.10 percent drop predicted by a Bloomberg survey.
Analysts said the fall, combined with the slower than expected rise in consumer price inflation, strengthened expectations of more interest rate cuts to spur economic growth.
The Reserve Bank of India (central bank) tracks consumer inflation more closely than the WPI, and forecasts it will stay below its target of six percent by January.
“The two inflation data points do increase chances of a rate cut from the Reserve Bank of India,” said Sujan Hajra, chief economist for Anand Rathi Securities in Mumbai.
But Hajra said he expected RBI governor Raghuram Rajan to hold off until the impact of India’s monsoon on food prices was known in August.
“By then the real picture of the monsoon would be clear as would the timing of a rate hike by the US Fed. And as it is, the RBI has already cut twice and transmission is yet to happen,” Hajra said.
After two cuts so far this year, the RBI held rates unchanged at last week’s policy meeting, citing the failure of commercial banks to pass on the previous cuts to customers in the form of lower borrowing costs.
Rajan also flagged ongoing concerns about once-high inflation, which the former IMF chief economist has been working to bring down since taking the central bank’s helm in 2013.
Rising food prices are a crucial issue in India, where even minor increases cause hardship for tens of millions of poor.
Wednesday’s figures show meat prices inched upwards, but the cost of fruit and vegetables declined, the commerce ministry said in a statement.
Business leaders have been asking for more rate cuts to help accelerate economic growth, which the IMF forecast this week would outpace that of China.
India has forecast growth of 7.4 percent for the year which ended in March — overtaking China and making India the world’s fastest growing major economy, after changing the way it calculates gross domestic product.
The figures have surprised many economists as India had previously been thought to be struggling through its worst economic slowdown since the 1980s.