The Wholesale Price Index has slowed to a 5-year low in October, supported by softening food and fuel prices. It has triggered expectations of a cut in interest rates by the RBI. The latest data comes soon after the numbers showing that retail inflation was lowering to a fresh low of 5.5% in October, largely due to falling food and fuel prices. The sharp moderation in price indices, which is evident from the two sets of data, puts great pressure on the Reserve Bank of India to cut interest rates to in order to boost growth.
The annual rate of inflation, based on the monthly wholesale price index, was 1.8% in October as compared to 2.4% in the previous month and 7.2% during the corresponding month of the previous year, as per data released by the commerce ministry. The October figure is the slowest pace of inflation since September 2009.
So far, the RBI has resisted calls for interest rate cuts, citing inflationary pressures. The RBI relies more on retail inflation than the WPI inflation. India Inc has been stepping up pressure to cut rates which, it says, is critical to boost investment and help revive economic growth. The government has also backed the calls for lowering interest rates, saying that it will spur demand for homes and help steer the economy out of the deep slowdown it faces currently. Lowering interest rates is also expected to help households reeling under higher mortgage payments.