India's wholesale price inflation eased to a near five-year low in September, helped by a moderation in food and fuel prices, but the risk of price shocks is expected to prevent the central bank from cutting interest rates soon.
The wholesale price index (WPI) rose an annual 2.38 per cent last month, its slowest pace since October 2009, compared with a 3.3 per cent jump forecast by economists in a Reuters poll. In August, wholesale prices rose 3.74 per cent.
The reading for July WPI inflation was revised to 5.41 per cent from 5.19 per cent earlier.
"The sharp moderation in inflation has been a culmination of a favourable base effect, moderation in food prices, softening crude oil prices and weak growth," said Upasna Bhardwaj, an economist at ING Vysya Bank.
Data released on Monday showed consumer price inflation, which the Reserve Bank of India (RBI) tracks to set policy lending rates, dropped sharply to 6.46 per cent in September, the lowest since the latest data series started in January 2012.
The moderation in price pressures was driven by cheaper food and fuel. Wholesale food inflation dropped in September to 3.52 per cent on lower vegetable prices from 5.15 per cent a month ago.
Notwithstanding the deceleration in inflation, the RBI is concerned that poor monsoon rains and geopolitical tensions that affect oil could drive up prices, making it tougher to reduce retail inflation to 6 per cent by 2016.
As a result, analysts widely expect it to keep interest rates on hold until the April-June quarter.
"Going into next year, we expect RBI to assess the diminishing upside risks to its 6 per cent target closely and press the trigger only when it is convinced of a meaningful correction in prices," said Bhardwaj.
The RBI sent a strong signal last month that it would hold off cutting rates until it was confident that consumer inflation could be reduced to a target of 6 per cent by January 2016.
Copyright: Thomson Reuters 2014
Get the latest election news, live updates and election schedule for Lok Sabha Elections 2019 on ndtv.com/elections. Like us on Facebook or follow us on Twitter and Instagram for updates from each of the 543 parliamentary seats for the 2019 Indian general elections.