Inflation drops to 2.38% , five-year low

According to provisional estimates for the month of September 2014, WPI (Wholesale Price Index) based inflation has fallen to 2.38% which is a five year low.  This is mainly attributed to the decline in food and fuel prices.  Also, the decline was far greater than the 3.2% that was forecast by analysts.

Breakdown of Inflation for the month of September

inflation-in-indiaFood inflation has fallen to nearly two and a half year low of 3.52%. Inflation in vegetables has fallen to 14.98%. Inflation in milk, eggs, meat and fish and showed a market decline. The food basket has been on a declining trend since May itself. However, in September, the prices of fruits and potatoes rose. Inflation in manufactured products fell to 2.84%. Overall WPI inflation has been declining for the fourth straight month. Inflation in fuel and power declined to 1.33%

Comparison with inflation of previous months and years

The 2.38% inflation rate is the lowest since 1.78% in October 2009. Wholesale price inflation stood at 3.74% in August and 7.05% in September 2013. Inflation in manufactured products and fuel and power segment stood at 3.54% and 4.54% in August 2014.

Change in rate by RBI

The RBI has maintained its key interest rate at the earlier level due to inflationary pressures. It is unclear whether this record low WPI inflation level will elicit a change in interest rate. The RBI primarily factors in the CPI (Consumer Price Index) rates while determining policy rates and even that saw a marked decline to 6.46% in September. Experts say that RBI’s CPI based inflation target of 6% to be achieved by January 2016, looks like it is possible if the current trend of declining inflation continues.  RBI’s next bi-monthly monetary policy announcement is expected on the 2nd of December.

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