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Core stays low on weak pricing power

Drop in manufacturing inflation for the fourth consecutive month reflects weak pricing power

Business Standard 


(WPI)-based slid for the fourth consecutive month in July, printing at 0.9 per cent and driven by a continued plunge in food and fuel and moderation in core Food and fuel categories have nearly 38 per cent weightage in the index.

Overall food (food articles plus manufactured food) entered the negative zone to record -1.3 per cent in June compared with 0.1 per cent in May. Fuel dropped to 5.3 per cent from 11.7 per cent, led by a sharp fall in global oil prices, while core (measured by the CRISIL Core Indicator — — which excludes volatile food articles, metals and fuel prices) eased to 1.5 per cent from 1.9 per cent. 

has, over time, offered a better perspective of demand-side impact on in manufactured products. Reason why it also indicates the pricing power of manufacturers. is computed after excluding in ‘basic metals’ from manufactured products, which is subject to high price volatility. in this metals category rose to 7.9 per cent in June, from 7.3 per cent in May.

Domestic metal prices typically move closely with global prices. In June, the global base metal index was up 20 per cent on-year, causing domestic prices to also rise. Meanwhile, the other measure of core such as non-food manufacturing inflation, which includes metal prices, stayed unchanged from the previous month at 2.1 pr cent. And interestingly, overall in manufactured products showed slower moderation in June compared with the previous months.

In June, in the manufactured products category was down just 30 basis points (bps) on-month at 2.3 per cent, compared with a 60 bps fall in May. was lower in manufactured food, textiles, paper and products, pharmaceutical products, rubber and plastic products, while there was some pick-up in beverages, tobacco products, wood products, printing equipment, non-metallic products. The drop in manufacturing for the fourth consecutive month reflects weak pricing power. 

The fall in headline is also attributed to a continued steep decline in fuel

In June, while the rupee was stable, crude oil prices fell nearly 8 per cent on-month and over 3 per cent on-year. fell across fuel categories with the sharpest fall seen in liquefied petroleum gas to (down 175 bps on-month to 0.7 per cent), aviation turbine fuel (down 160 bps to 8.6 per cent), petrol (down 120 bps to 6.5 per cent) and diesel (down 156 bps to 7.1 per cent). 

Food entered the negative zone to record -1.3 per cent in June, down from 0.1 per cent in May. in food articles slipped to -3.5 per cent from -2.3 per cent, whereas in manufactured food products eased to 3.1 per cent from 4.8 per cent. 

Lately, the decline in food articles’ has become more broad-based as categories other than pulses and vegetables, such as cereals, fruits, sugar, edible oils, and eggs, have also seen fall steadily. Record in food production in fiscal 2017, healthy progress of monsoon so far, and continued decline in vegetables supported by a high base effect are the main factors behind easing food

Going forward, healthy agriculture production following normal rains, benign global prices and moderate increases in minimum support prices are expected to keep a tab on food inflation, while fuel will stay low given softer global oil prices. The months to come could also see some bump-up in prices at the retail level as producers scamper to price their products and services in line with GST rates. The unintended impact of changes in tax rates on consumer prices could be disrupting and could linger due to asymmetry in transmission of tax rate changes to the end-consumer. However, the impact of these prices changes are unlikely to be felt in the since the new series excludes the impact of such indirect taxes on prices.

shows sharper fall in June as it excludes ‘noisy’ metal prices
Note: *removes base metal prices from manufacturing index
Source: Ministry of Industry and Commerce, CRISIL Research

First Published: Sat, July 15 2017. 01:36 IST