The annual rate of wholesale inflation eased to 7.18% in December, lower than market expectation of 7.37 percent and down from 7.24% in November, while the consumer price inflation rose to more than a year high of 10.56 percent in December. The sharp jump in consumer price inflation is largely attributable to an unfavorable base. On a sequential basis though, the food index has moderated broadly led by fall in vegetable prices. This is in line with the usual price behavior of fruits and vegetable prices in the winter season. As it stands, wholesale Inflation now is at its lowest rate in 3 years. The slight fall continues the downward trend which started in October.
The central bank has not lowered interest rates since April because inflation, fuelled by a weak rupee and more expensive oil imports, has remained above 7%. As a consequence, the economic growth has been slowing since last year, falling to an annual pace of 5.3 percent in the July to September quarter. Even industrial output faltered in December to negative 0.1 percent. Though looking at the headline retail inflation alone, the case for cutting rates becomes weaker. However the headline WPI and core inflation have seen a sustained fall for the third straight month which definitely makes for a strong case of a minimum 25 bps rate cut in RBI's policy meet on the 29th of this month.
Below graph shows India's consumer and wholesale price inflation yoy since April 2012
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