Inflation slows as economy falters

NEW DELHI: The country’s annual wholesale price inflation in July eased to a 25-month low of 1.08 per cent, indicating manufacturers are losing their power to raise prices as an economic slowdown deepens.

Manufacturing inflation, which contributes around 64 per cent to the Wholesale Price Index, rose just 0.34 per cent in July from a year earlier, compared with 0.94 per cent in June and 4.53 per cent in July 2018.

As a result, headline WPI inflation weakened more than expected from 2.02 per cent in June. Analysts had expected it to dip to 1.93 per cent.

The vehicle industry, which represents 60 per cent of manufacturing output once components-makers are included, is in a deep crisis.

The weak wholesale inflation data reinforced views that the Reserve Bank of India will cut interest rates for a fifth straight time at its next policy meeting in October in a bid to stimulate consumption.

However, Capital Economics believes underlying inflation will rise before long, highlighting the risks of aggressive monetary loosening.

Food prices could go up in coming months, while core consumer inflation has started to rise again, the consultancy said in a note to clients.