Wholesale inflation eases to 1.89% in November from 2.36% in previous month

Wholesale inflation in the country eased to 1.89 per cent in November from 2.36 per cent in the previous month, aided by a decline in select food items, especially vegetables, showed official data released on Monday. Economists said that the arrival of seasonal supplies in the market helped in lowering the prices of select items last month. The latest monthly data on wholesale inflation—also known as headline inflation—comes days after a separate reading showed domestic consumer inflation cooled to 5.48 per cent in November from 6.21 per cent the previous month. Wholesale inflation captures the rate of increase in the prices of select goods and services based on the Wholesale Price Index (WPI).    

Food inflation, determined by the WPI-Food index, eased to 8.92 per cent in November from 11.59 per cent in October. The food index, carrying a weightage of 24.4 per cent to the overall WPI index, comprises food articles from the primary category and food products from the manufactured products group.

Vegetable inflation—or the rate increase in the prices of select vegetables—came in at 28.57 per cent in November as against 63.04 per cent the previous month.

Within the vegetable basket, potato inflation remained high at 82.79 per cent, while onion inflation stood at 2.85 per cent last month.

Inflation in manufactured goods worsened by 50 basis points (bp) to 2.0 per cent in November.

On the other hand, wholesale deflation—or negative inflation—in the 'fuel and power' category stood at 5.83 per cent in November as against 5.79 per cent in October.

Overall, slowing inflation marks a reversal of the increasing trend in the previous two months, giving the RBI the necessary room to trim key interest rates to propel economic growth. 

The Reserve Bank of India (RBI) tracks consumer inflation data primarily to formulate its monetary policy.

In its December policy review, the RBI Governor-led Monetary Policy Committee (MPC) decided to cut the cash reserve ratio (CRR) by 50 basis points in two tranches to make more funds available for lending to spur economic growth. It, however, maintained the repo rate—the key interest rate at which the RBI lends money to commercial banks—unchanged at 6.5 per cent.

The action on CRR, an effective tool that enables the RBI to define the proportion of available cash that commercial banks need to keep reserved with the RBI, is set to infuse liquidity to the tune of Rs 1.16 lakh crore into the banking system.

Fundamentally, the monetary policy strives to maintain \balance between inflation and economic growth. 

Meanwhile, RBI Governor Sanjay Malhotra took office last week after Shaktikanta Das's six-year stint at the top helm at the central bank ended on December 10. 

The MPC's next bi-monthly policy review, due in February, will be the first under the RBI's 26th Governor, Malhotra.