New Delhi: The consumer as well as wholesale price inflation dived to new lows in August on falling global commodity prices, bolstering chances of an interest rate cut by RBI.
Consumer price inflation, RBI's benchmark, eased to 3.66 percent in August from 3.69 percent, while wholesale prices tumbled for a tenth straight month to minus 4.95 percent compared with a provisional (-) 4.05 percent in July.
The dip in inflation adds to pressure on RBI Governor Raghuram Rajan to cut interest rates for a fourth time this year.
Rajan, who has so far resisted pressure from the government as well as the industry on easing monetary policy, is to announce next bi-monthly policy on September 29.
The decline in inflation has been mainly on account of moderating prices of food items with the exception of onion and pulses. This has sparked fears of deflation in the economy, which some economist argue would create further problems in the coming days.
Also of concern is drought-like situation with about half of the country witnessing deficient rainfall.
Commenting on the data, Finance Minister Arun Jaitley said: "During the monsoon period because of seasonal variations, (prices) of some products go up. But overall inflation continues to moderate and seems to be under control."
The wholesale inflation was (-)4.05 percent in July. It has been in the negative zone since November 2014. In August last year, it was 3.85 percent.
Price rise in onions and pulses was at 65.29 percent and 36.40 percent respectively during August, as per the data.
Overall, WPI food inflation basket remained in negative territory for second month in a row at (-)1.13 percent.
According to Economic Affairs Secretary Shaktikanta Das said: "RBI will take a considered call on the issue. There is no divergence in perception. The government and RBI are working together. Taking into account the overall factors, RBI will take a considered call."
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Das who reviewed the fiscal situation along with other secretaries in the Finance Ministry, said in a tweet: "Declining inflation numbers (are) in line with governemnt expectations. Should augur well for the economy."
As regards CPI inflation, a slower rate of price rise in fruit and vegetables and protein items, except for pulses, pulled the inflation to a new low of 3.66 percent in August, as against 3.69 percent in July.
CPI food inflation during the month, however, rose slightly at 2.20 percent as against 2.15 percent in July.
Vegetable prices declined at (-)6.36 percent during the month while fruits were cheaper at an inflation rate of 0.99 percent.
Industry body CII said CPI inflation has also been declining, RBI needs to reduce interest rates sharply to drive a recovery in demand.
"We expect RBI to reduce interest rates by 0.50 percent in the forthcoming policy with statements supporting further easing in the near future," CII Director General Chandrajit Banerjee said.
Chief Economic Advisor Arvind Subramanian had recently flagged deflationary fears in the economy, while NITI Aayog Vice-Chairman Arvind Panagariya had pitched for cut in policy rate by 0.50 percent to 1 percent saying that "this lever" can be used to boost growth.
"CPI inflation dipped slightly to print in at 3.66 percent year on year in August. However, there were pockets of pressure from items like pulses...We would expect core inflation to remain ranged in the coming months.
"Overall, the possibility of some easing of rates has increased as the inflation trajectory is lower than what the RBI had earlier anticipated. That said, focus would now be on the crucial Federal reserve meeting on the 17th," said Richa Gupta, Senior Director, Deloitte in India in a statement.
Ratings and research firm ICRA said CPI data lends support to the expectation of a repo rate cut in the RBI's upcoming policy review.
