WPI inflation for the month of January has come in at 5.05 per cent, way below analysts expectations of a number of 5.5 per cent. This was also way below the WPI inflation rate of 6.16 per cent in the previous month of Dec 2013. The sharp fall in the WPI inflation along with the sharp fall in the CPI will now raise hopes for a rate cut from the RBI sooner than later. In fact, the CPI data released earlier this week saw a drop on the CPI inflation to a two year low.

Food inflation led declines in the WPI with the index for 'Food Articles' group declining by 2.7 percent
Lower price of fruits & vegetables (11%), maize (3%), ragi (2%) and gram, coffee, arhar and tea (1% each), helped push food index lower.

However, the price of poultry chicken (5%), pork (3%), urad and egg (2% each) and moong, bajra, condiments & spices, masur, fish-inland, beef & buffalo meat and fish-marine (1% each) moved up. The manufacturing index which had the highest weightage in the WPI index of 64.97 per cent rose by 0.5 percent month on month.

The fuel and power index which has a weightage of 14.91 per cent, rose by 0.7 percent month on month. The government also left the inflation number for Nov unchanged.

Today's inflation reading may raise expectations from the RBI to cut rates sooner than expected. However, economists feel that the RBI may choose to hold rates as food inflation has remained volatile and any increase in food inflation is likely to push inflation higher once again.

GoodReturns.in