Sept WPI inflation hits 5 year low of 2.38%; raises hopes of interest rate cuts

The Whole Sale Price Index Inflation (WPI Inflation) for the month of Sept 2014 came in sharply lower then expected at 2.38 per cent, way below analysts expectations of an over 3 per cent inflation rate.

The September WPI Inflation is the lowest seen since Nov 2009. The WPI Inflation for the month of August was placed at 3.74 per cent.

"The annual rate of inflation, based on monthly WPI, stood at 2.38 per cent (provisional) for the month of September, 2014 (over September,2013) as compared to 3.74 per cent (provisional) for the previous month and 7.05 per cent during the corresponding month of the previous year. Build up inflation rate in the financial year so far was 2.61 per cent compared to a build up rate of 6.23 per cent in the corresponding period of the previous year," a government release states.

The index for manufactured remained unchanged at its previous month's level. For the month of July the WPI inflation stands revised to 5.41 per cent.

The index for fuel and power declined by by 0.3 percent month-on-month.

Today's fall in WPI inflation comes a few days after the CPI Inflation showed a decline. The sharp drop in inflation rates now raises the prospects of the Reserve Bank of India cutting interest rates earlier then expected.

Analysts, however, continue to remain worried on whether the drop in inflation could be sustained. Much would depend on crude oil prices which have slumped over the last one month, dragging inflation in India lower.

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