British inflation rate falls back to zero

The inflation calculated on Wholesale Price Index (WPI) during August continued to remain in negative territory for the tenth month in a row, while the one measured on Consumer Price Index (CPI) has touched a new low.

Given that CPI inflation has also been declining, RBI needs to reduce interest rates sharply to drive a recovery in demand, industry body CII said. The government too is in favour of interest cut as inflation is low.

Consumer prices were unchanged compared with a year earlier following an annual 0.1 per cent gain in July, the Office for National Statistics said in London on Tuesday (Sept 15).

India’s two main inflation indices eased further on Monday (Sep 14), according to government data, hiking prospects of an interest rate cut later this month. Besides pulses and onion, the food items which became dearer in August are eggs, meat and fish (3.30 per cent), milk (2.08%) and wheat (2.05%).

“The inflation trajectory will be lower than RBI’s estimate”, said A. Prasanna, an economist with ICICI Securities Primary Dealership Ltd, who expects the central bank to deliver a 25 basis points of rate cut a fourth time this year.

“Although the extent of global volatility post the US Federal Reserve’s rate decision later this week remains critical, today’s CPI data lends support to the expectation of a repo rate cut in the RBI’s upcoming policy review”, said ICRA, senior economist, Aditi Nayar.

Inflation slowed on a fall in the price of motor fuels and a smaller rise in maritime fares and the price of clothing than the year earlier. Some economists are anxious about a pickup in overall retail inflation once a favourable base effect wears off. “Core Inflation (excluding food and fuels) decelerated to 4.1 percent in August 2015 from 4.3 percent in July 2015, continuing the momentum of decelerating core inflation”, he told reporters.

The BoE’s own website says that “inflation below the target of 2% is judged to be just as bad as inflation above the target”, yet the Treasury has welcomed the figures. However, the price of raw silk (12%), gaur seed (11%), raw rubber (8%), soyabean (6%), gingelly seed (sesamum) (3%) and linseed and raw cotton (2% each) declined.