India’s wholesale price based inflation came in at a lower-than-expected 7.25 percent in June, putting pressure on the Reserve Bank of India to cut policy rate when it reviews its policy rate in June.
The WPI was 7.55 percent in May and 9.51 percent a year ago.
Prime Minister’s Economic Advisor Council Chairman C Rangarajan told CNBC-TV18 that non-food manufacturing inflation – which the RBI is more bothered about – was a steady 5 percent in the month.
market has been keenly waiting for the data which is coming two weeks ahead of the RBI’s policy review on 31 July.
On Thursday, government data had showed that industrial growth in May was 2.4 percent, as against a decline of 0.9 percent in April.
Whether the fall in inflation is giving any larger headroom for the RBI to take a rate action is not clear.
The government also revised upwards the April inflation data to 7.5 percent from the earlier announced 7.23 percent.
The equity markets, however, recovered from their day’s low as the lower inflation gave rise to hopes that the RBI may finally get headroom to cut interest rate.
The Sensex was at 17,229, up 0.1 percent from Friday.
“It provides a slightly improved environment in which an action can be taken,” C Rangarajan, Chairman, Prime Minister’s Economic Advisory Council, told CNBC-TV18.
He, however, said the scanty monsoon is a worry and a policy decision can be taken only looking the unfolding situation.
However, there are also doubts being raised about veracity of the data.
"My suspicion is that data on electricity is not getting updated because we have not seen tariff hikes getting reflected in it, A Prasanna, chief economist, ICICI Securities Primary Dealership, was quoted as saying in a Reuters report.
"The headline number is artificially suppressed. All said and done, the manufacturing inflation rate is still 5 percent, and there's no further improvement in the core inflation, which is around 4.8-4.9 percent, which is where it has been in the last three months,” he said.
"I don't see momentum on the lower side for headline inflation in the coming months. I expect the Reserve Bank of India to keep status quo on rates on July 31."