April WPI inflation falls sixth straight month to -2.65%

"The real problem in coming months is going to be huge funding gap because we have started seeing some green shoots and some earlier signs of revival in capital good sectors and commercial vehicles," says Rupa Rege Nitsure, Chief Economist, L&T Finance Holdings in an interview to CNBC-TV18.

"However, otherwise industrial slowdown is so acute and both consumer durables and consumer non durables are reeling under pressure. Today's number actually has vindicated the call on deflationary trends. It requires some radical action," she says.

Retail inflation for April, announced last week, hit a four-month low of 4.87 percent.

Given the weakness in industrial output and downtrend in inflation, expectations of a rate cut by the RBI at its June meet have risen.

"These are waning windows for emerging market economies to entertain easing monetary policy before the inevitable rate normalization comes in the US -- last week’s market action itself is an ample warning that how volatile things can get in the second half of this year," Taimur Baig, Chief Economist for Asian & Global Markets Research, Deutsche Bank AG, told CNBC-TV18 in an interview yesterday.

While a downtrend in inflation was much awaited, sustained deflation spells bad news for the economy as a whole. That is because producers will start cutting down on production because of weak demand, which in turn will further reduce economic activity and lead to job losses or poor wage growth

Following is the break-up of the April WPI performance:

Food articles inflation at 5.73% Vs 6.31% (MoM)

Food articles index up 1.3%

Vegetable inflation at -1.32% Vs 9.68% (MoM)

Non-food articles inflation at -6.18% Vs -7.12% (MoM)

Non-food articles index up 0.6%

All commodities index down 0.1%

Primary articles inflation at -0.25% Vs 0.08% (MoM)

Primary articles index up 0.9%

Manufactured products inflation at -0.52% Vs -0.19% (MoM)

Manufactured products index down 0.1%

Fuel, Power group inflation at -13.03% Vs -12.56% (MoM)

Fuel & Power Group index down 1.7%

Rupa Rege Nitsure, Chief Economist of L&T Finance Holdings, Vivek Rajpal, Rates Strategist of Nomura India and Aditi Nayar, Senior Economist at ICRA spoke to CNBC-TV18’s Latha Venkatesh and Reema Tendulkar and shared their outlook on WPI numbers.

Latha: Is this a more clarion call for some help and some action from the Reserve Bank of India (RBI)?

Rege: Certainly both from RBI as well as government of India, because the real problem in coming months is going to be huge funding gap because we have started seeing some green shoots and some earlier signs of revival in capital good sectors and commercial vehicles etc. However, otherwise industrial slowdown is so acute and both consumer durables and consumer non durables are reeling under pressure. Today’s number actually has vindicated the call on deflationary trends. It requires some radical action.Latha: What is your sense? Should the market be spoiling for a rate cut? It just refuses to budge. It is only obeying the global yields which have shot up and therefore the Indian yields are not falling before 7.95. The tenure yield will come up for you. But what is your sense? Should the market should now be surer of a rate cut on June 2?

Rajpal: Marginally it helps. But given that RBI is super focused on consumer price index (CPI) naturally the impact of wholesale price index (WPI) these days is much lower than what it used to be probably six months back. Nevertheless, lower reading helps. At the moment, it is a question of sentiment with what global fix think the markets are doing, the volatility around there. Even that had a spill-over effect over Indian bond markets. And from that perspective a four handle CPI reading a few days back and this negative reading on WPI definitely helps. So, yes, the rate cut expectation remained well intact from the market perspective.

Latha: Your thoughts on inflation number would you call it a severe disinflation?Nayar: The number today is a tad bit a deeper of a disinflation than what we had expected. Overall I would say this reinforces our view of a very high likelihood of a rate cut in this June 2015 policy review. I would expect that at least the disinflation that we have seen over the last several months possibly is not going to deepen further in the next couple of readings and as you mentioned earlier one of the reason for that of course is a fact that rural prices have firmed up and that has already had one impact in terms of the increase in petrol and diesel prices. That has already been announced at the beginning of this month. There will be a lagged impact of that in the second fortnight as well.