Inflation dips to 5-year low of 3.7 pc; RBI rules out rate cut

New Delhi: Softening prices of food items, including vegetables, pulled down the WPI inflation to five-year low of 3.74 per cent in August, but it may not bring relief to the industry as the RBI is insisting that "there is no point in cutting interest rates" to see prices go up again.

The August inflation, measured by Wholesale Price Index (WPI), declined from 5.19 per cent in July, while the same was 6.99 per cent in the same month last year.

The August WPI inflation is the lowest since October, 2009 when it stood at 1.8 per cent.

According to the official data released today, inflation in the food segment saw a significant decline to 5.15 per cent in August from 8.43 per cent in July.

Vegetable prices contracted 4.88 per cent in August, registering the third continuous month of decline. Onion prices were down by 44.7 per cent.

Potato prices, however, were on the rise as inflation in the kitchen essential jumped to 61.61 per cent in August from 46.41 per cent in July.

With WPI inflation coming down to five-year low level, India Inc has raised the pitch for lowering of the interest rate to boost industrial output that slipped to four month low of 0.5 per cent in July.

Speaking at a function in Mumbai, Reserve Bank Governor Raghuram Rajan, however, said prices across the board have to come down to enable the central bank to cut key rates.

"There is no point in cutting interest rates to see inflation picking up again," he said, adding that right now he thinks the RBI is continuing the way it proposed recently.

The RBI is targeting a retail inflation of 8 per cent by January next year and six per cent by January, 2016.

The retail inflation, measured on Consumer Price Index, (CPI) had also eased to 7.8 per cent in August compared to 7.96 per cent in July.