India's headline inflation fell sharply to five-year low of 3.74% in August 2014 as compared to 5.19% in the previous month. It came below market expectations of 4.1%. June WPI inflation revised to 5.66% from 5.43% earlier.
Commenting on the WPI numbers, Aditi Nayar, senior economist, ICRA said, "The drop in primary food inflation in August 2014 should be interpreted with caution, as it benefited from a favourable base effect, with inflation at a high 19.2% in August 2013. Lower and delayed sowing in 2014 as compared to 2013 remains a concern for crop yields and food prices. Notwithstanding the drop in global commodity prices as well as the moderation in core-CPI and core-WPI in August 2013, we expect the RBI to maintain a cautious stance and keep the repo rate unchanged in the upcoming policy review."
Debopam Chaudhuri, chief economist, ZyFin Research said, "Although it is encouraging to note the dip in WPI, a more cautious interpretation is necessary before adjudging it a trend. There seems to be a rising departure between CPI levels reported last week and WPI, with retail food prices remaining sticky while wholesale prices cooling. Also, a decline in wholesale inflation of manufactured goods may be a sign of dwindling demand as IIP data on manufacturing sector also registered a dip in July 2014. It is likely that the market would not react much to today's WPI data, given the ambiguity in trend."
Sujan Hajra, Anand Rathi Research said, "WPI inflation reached a five-year low of 3.7% in Aug'14. While food led the slowdown (4.6%), fuel inflation also fell to 4.5%. Core inflation fell to 3%. Despite the good figures, RBI is likely to remain in a pause mode until CPI inflation falls in an enduring manner. Yet, we feel that growth rather than inflation should be the immediate-term concerns of the public authorities."
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