New Delhi: Declining price of food items, including fruits and vegetables, pulled down inflation to nearly a three-and-a-half-year low of 4.89 percent in April, which may present a case for further monetary policy easing.     

Inflation based on the Wholesale Price Index (WPI) stood at 5.96 percent in March. In April, 2012, it was 7.50 percent. This is the lowest level of inflation since November, 2009 when it was 4.78 percent.
    
As per official data released on Tuesday, WPI inflation in the manufactured items category declined to 3.41 percent in April from 4.07 percent in March.
    
Also, inflation in food articles category, which has a 14.34 percent share in the WPI basket, came down to 6.08 percent. Inflation in this category was at 8.73 percent in March.
    
The easing in food inflation was helped by a sharp drop in prices of vegetables. Inflation in vegetables stood at (-)9.05 percent in April, against (-)0.95 percent in the previous month.
    
The inflation in fruits declined to 0.71 percent during the month as compared to 4.71 percent in March. However, the rate of price rise in onion was high at 91.69 percent for the month of April, as against inflation rate of 94.85 percent in the previous month.
    
Inflation for February was revised upwards to 7.28 percent from 6.84 percent as per provisional estimates. The retail inflation, as measured by consumer price index, came down to single digit at 9.39 percent in April after many months, indicating that inflationary expectation is on declining trend.
    
The RBI will take into account the declining inflationary trend while unveiling its mid-quarter policy review on June 17. Commenting on inflation figures, Department of Economic Affairs Secretary Arvind Mayaram said: "We are happy that inflation figure has come down".
     
Inflation in wheat eased to 13.89 percent in April, as against 19.87 percent in the previous month. Potatoes too saw decline to (-)2.42 percent, from 20.06 percent in March. Inflation rate in rice and cereals eased to 17.09 percent and 15.63 percent, respectively, in April.
    
Pulses prices declined marginally to 10.28 percent during the month. While the inflation rate in egg, meat and fish category stood at 10.44 percent, for milk it was 4.04 percent. For the fuel and power category, it was lower at 8.84 percent in April as compared to 10.18 percent in March, 2013.
    
In order to accelerate economic growth, the Reserve Bank of India (RBI) earlier this month cut key interest rates by 0.25 percent.
        
"Although headline WPI inflation has eased by March, 2013 to come close to the Reserve Bank's tolerance threshold, it is important to note that food price pressures persist and supply constraints are endemic, which could lead to a generalization of inflation...," the RBI had said.
               

COMMENTARY
               
SHAKTI SATAPATHY, FIXED INCOME ANALYST, AK CAPITAL, MUMBAI
               
"The data is significantly below the market consensus and is largely driven by demand moderation as being highlighted in the consecutive fall in the core inflation and decline in food article prices.
               
"Having said that, the upward revision in the February numbers shouldn't be taken in isolation and is expected to be closely looked at by the central bank. Though the current retail inflation level gives some comfort, the suppressed inflationary factors coupled with trade deficit data would be pivotal in announcing any big-step monetary leap in the coming meet."
              
RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI
               
"Increased growth risks in the manufacturing sector are strongly reflected in a sharp drop in core inflation to 2.77 percent.
               
"Emerging inflationary scenario combined with a skewed growth picture pained by the IIP reading suggests that both RBI and government will now have to concentrate on providing stimulus to growth, as inflation has been coming off sequentially."
               
INDRANIL PAN, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI
               
"I don't think this number will prompt RBI to cut the repo rate by 50 basis points (in June). The RBI needs to be very comfortably rooted on inflation pressures like coal prices, electricity prices, forex depreciation impact, diesel price increase impact and current account and fiscal deficit.
               
"It will want to anchor inflation within 4-5 percent. Since RBI expects inflation to rise post September, I don't think the governor will risk cutting rates aggressively given that inflation risks can emerge faster. Also, since banks are not cutting lending rates, big rates cuts could get wasted."
              
RAHUL BAJORIA, REGIONAL ECONOMIST, BARCLAYS CAPITAL, SINGAPORE
               
"With food prices expected to remain stable, manufacturing prices weak due to slow growth and commodity prices stable, inflation in expected to be on a broad downtrend for the next six months and this, we believe, opens up room for more rate cuts.
               
We think there is a possibility of as much as 75 basis points more rate cuts in the next six months, including 25 basis points in the next policy in June. With CPI (consumer price index) moving at the margin and WPI easing, inflation expectations should start coming off, which should be the key factor for the central bank to consider for its rate stance.
               
SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI
               
"There is across-the-board softness, and we do expect some easing in June or July by the RBI, a 25 basis points rate cut. Earlier, we were looking at June but given the concerns on current account, and the fact that monsoon outlook will get clearer in July, it allowed us to think probably it probably could be June or July when RBI cuts rates. "After the 25 bps cut, we expect a longish pause."
               
SURESH KUMAR RAMANATHAN, HEAD OF REGIONAL INTEREST RATES AND FX STRATEGY, CIMB, KUALA LUMPUR
               
"Lower than expected inflation, justifies recent RBI easing and the typical reaction in the OIS (overnight indexed swap) market. While broad-based growth slowing is anticipated in Asia, the relative softness in price pressures in India is not surprising.
               
"While further rate cuts are still evenly balanced, the shift in sentiment in OIS markets will continue. Market is leaning closer towards receiving rather than paying on OIS rates complex."
               
RADHIKA RAO, ECONOMIST, DBS, SINGAPORE
               
"Cast against the backdrop of deferred diesel price adjustments, weak aggregate demand and tame food costs, it is not surprising that inflation remains non-threatening. The easing-off in inflation on sequential basis is becoming notable in recent months.
               
"This release, in isolation, provides sufficient policy leeway, though the over 70 percent jump in April's trade deficit has washed CAD worries to the shore once again.
               
"In addition, the debate on which inflation metric the RBI must be monitoring also holds water, with CPI inflation flagged as a better representative. To this extent, the authorities might prefer to sit on their hands in June and act in July instead."
               
MARKET REACTION
               
* Markets reacted to the inflation data when TV news channel first reported it, citing unnamed sources.
 
* The benchmark 10-year bond yield fell 3 basis points to 7.54 percent from levels before the TV report.
               
* The benchmark 5-year swap rate fell 5 bps to 6.77 percent, while the one-year rate dropped 3 bps to 7.15 percent.
               
* The partially convertible rupee did not react immediately but gradually rose to 54.56 from 54.68 before the TV report. It had closed at 54.73/74 on Monday.
               
* Shares gradually extended gains to as much as 0.7 percent and pared some of the rise after the official data release.    

(Agencies)

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