Inflation drops to 5-yr low of 1.77%, India Inc wants rate cut

New Delhi: Driven by softening prices of fuel and food items, the WPI inflation cooled to a five year low of 1.77 per cent in October raising hopes of rate cut by the Reserve Bank next month to boost economic growth.

The decline in Wholesale Price Index (WPI) based inflation from 2.38 per cent in September, follows the fall in retail inflation which hit a record low of 5.52 per cent in October.

Commenting on WPI inflation, which fell for the fifth month in a row, Finance Minister Arun Jaitley said the decline in global crude prices should further help in improving the price situation.

"We believe that softening of prices is in our interest.

With crude prices down, this trend of lower food prices will continue," he told reporters here.

As per the official data released today, food inflation fell to a nearly two-and-a-half year low of 2.7 per cent. Food inflation is on a decline since May.

Inflation in the fuel and power segment which include LPG, petrol and diesel declined to 0.43 per cent in October.

With the international crude prices declining further to a four year low of USD 77 a barrel, the inflation in fuel segment is likely to soften in the coming days.

Encouraged by the decline in inflation, India Inc has stepped up its demand for a cut in interest rates by the RBI in next bi-monthly monetary policy on December 2.

"Alleviated inflation creates room for a more accommodative stance from the central bank in terms of rate reduction in the next policy," Ficci said.

Industry has been demanding a rate cut to boost growth which had slumped to 4.7 per cent in 2013-14.

Commenting on the industrial output growth which was at a three-month high in September, Jaitley said: "2.5 per cent (IIP growth) is not enough for me to smile. Targets are higher and it will take its time. Steps that we are taking will take a little time before it shows it's impact," he said.