Providing some relief to common man, softening vegetable prices pulled down inflation to over 3-year low of 5.96 percent in March, raising hopes of rate cut next month by the Reserve Bank to boost economic growth.This is the lowest level of Wholesale Price Index (WPI) inflation since December 2009 when it was 4.95 percent.
Inflation based on the WPI stood at 6.84 percent in February. In March 2012, it was 7.69 percent.
Food inflation, which has 14.34 percent share in the WPI basket, declined to 8.73 percent in March from 11.38 percent in February.
Easing of food inflation was on account of a sharp drop in prices of vegetables. Inflation in vegetables stood (-)0.95 percent in March, from 12.11 percent in the previous month.
Commenting on the inflation numbers, Planning Commission Deputy Chairman Montek Singh Ahluwalia said inflationary pressure is coming down gradually.
"Inflation behaviour is consistent with what government has been saying that it is slowly coming under control," he said.
Experts said WPI has come down mainly on easing of fruits and vegetable prices, but retail inflation continues to be in double digit as food inflation remains structurally high.
"The easing has happened on account of a significant decline in global commodity prices in March and growing deflationary trends in manufacturing sector. I expect RBI to reduce both the repo rate and CRR by 0.25 percent," Bank of Baroda Chief Economist Rupa Rege Nitsure said.
Inflation for January, however, was revised upwards to 7.31 percent, from 6.62 percent provisionally.
The decline in March inflation and a slowdown in industrial output growth to 0.6 percent in February has raised expectations of rate cut by RBI to boost growth. RBI will announce its annual policy on May 3.
The 5.96 percent March-end inflation is much lower than the Reserve Bank's projection of 6.8 percent.
"Near one percentage point drop in the inflation has come as a big relief to the industry and as a pointer to the RBI to reverse its hawkish policies and cut the interest rates rather aggressively," said Rajkumar Dhoot, President of the industry body Assocham.
Inflation in the manufactured items category witnessed a marginal decline at 4.07 percent in March. It was 4.51 percent in February.
The rate of price rise of onions was 94.85 percent for the month of March, as against the inflation rate of 154.33 percent in February.
Inflation in rice prices eased to 17.90 percent in March, as against 18.84 percent in the previous month.
The stock markets reacted positively to the inflation number and the BSE 30-stock index, Sensex, closed 115.24 points higher at 18,357.80.
The RBI has cut interest rates twice in 2013 by 0.25 percent each to promote growth but cautioned that rate cut in the future would depend on moderation in inflation.
Industry has been demanding a rate cut to boost growth which is estimated to have fallen to a decade's low level of 5 percent in 2012-13 fiscal.
The government is taking steps to cool inflation by easing supplying side constraints, besides trying to attract investment to increase productivity.
