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Press Release

Price Pressures Remain Mute; Room for Monetary Action to Open up As Government Steps up Supply Side Measures

June 15, 2015


It is heartening to note that India’s inflation continues to be benign. Retail inflation has been undershooting the targeted rate of 6% by an average of 88 basis points over the last four months. For the month of May 2015, headline CPI inflation stood at 5.01%. WPI inflation, on the other hand, has been negative for seven consecutive months, at below -2% in May 2015.

  • Concerns over food inflation have proved to be a red herring: Despite 12% monsoon deficiency in 2014, food inflation nearly halved as per both WPI and CPI metrics. Unseasonal weather disturbances in early 2015 have only had a localized impact on overall food inflation.
  • Structural measures have worked well: Factors like rationalized adjustments in administered procurement prices, calibration of incentives for agri-trade, prudent liquidation of buffer stocks, strict action on illegal hoarding, amongst others, have had an overriding positive impact on food inflation over the last one year.
  • Underlying momentum for core inflation remains soft: While Core-CPI inflation edged up marginally to 4.64% in May 2015 from 4.26% in April 2015, demand side pressures continue to remain mute, as manifested by the third consecutive negative print for Core-WPI inflation.
  • Weak Q4 FY15 earnings for the corporate sector further corroborate the persistent lack of pricing power.
  • Industrial activity is gradually on the mend: IIP for April 2015 rose to 4.1% from 2.5% in March 2015. While capital goods sector has started reflecting some early traction, consumer, mining, and electricity sectors remained subdued.

ASSOCHAM believes that policy needs to provide continuous throttle in order to promote a broad-based economic recovery. While the Government needs to accelerate supply-side reforms further, monetary policy needs to utilize every bit of available space for expansion.

Although monsoon forecasts ought to spell caution, the Government is expected to demonstrate agility in addressing food supply related shocks. This should begin to provide comfort to the RBI to resume its monetary easing cycle.


Rana Kapoor

President, ASSOCHAM

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