India's annual wholesale prices declined at their fastest pace in at least nine years in March on cooling oil and manufacturing costs. The wholesale price index (WPI) declined 2.33 per cent year-on-year last month, their fifth straight fall, compared with a 1.95 per cent fall forecast by economists and a provisional 2.06 per cent decline in February.
The reading for January wholesale price inflation was revised to show the index fell by 0.95 per cent year-on-year, a deeper fall than the 0.39 per cent initially reported. With retail inflation staying well below the 6 per cent upper end of the Reserve Bank of India's target range and the WPI providing more evidence of subdued price pressures, analysts expect the Reserve Bank of India (RBI) to cut interest rates by another 25 basis points (bps) by June.
Economists at Barclays Research wrote in a note after the release of the WPI data that the "continued benign trends in inflation and inflation expectations could provide room for further easing".
The central bank has cut interest rates twice this year at unscheduled meetings, but kept the repo rate on hold at 7.50 per cent, as it waits to assess inflation pressures and give commercial banks more time to cut lending rates. It is due to review the rate again on June 2.
Although the International Monetary Fund expects India to become the fastest growing major economy in the world this year, the latest WPI data points to increasing economic slack. Non-food manufactured product prices, a proxy for domestic demand and pricing power, fell 0.4 per cent year-on-year in March compared with a 0.1 per cent gain a month earlier.
"There is plenty of evidence of spare capacity in the economy, which should keep a lid on core price pressures," said Shilan Shah, India economist at Capital Economics.
