Interest rate cut chances get slimmer with WPI turning positive

Rise in food prices have been influential in leading CPI higher; and now Wholesale Price Index (WPI) readings suggest that it has turned positive in April for the first time in 18 months, and there has been a credit spurt in food prices. 

WPI reading is important along with CPI as the rise in inflation would make it difficult for policy makers to reduce interest rates. The WPI has risen by 0.34 percent in April compared with a reading of -0.85 percent for the month of March.

Food prices have increased at a higher rate of 4.23 percent in April mainly due to increase in prices of pulses and potatoes. The prices for pulses have grown by 36 percent; and for potatoes the prices have increased by 35 percent.Consecutive droughts in 2014 and 2015 have led to less pulses being produced. 

According to analysts, the next policy review is in the month of June and with CPI and WPI reading showing inflation on the rise, the chances of interest rate cut are minimal. The monetary policy target for inflation is 5 percent for 2016-17.  

The aim is to maintain CPI at 5 percent levels.