Wholesale Price Index
slid for the fourth consecutive month in July, printing at 0.9 per cent and driven by a continued plunge in food and fuel inflation
and moderation in core inflation.
Food and fuel categories have nearly 38 per cent weightage in the index.
Overall food inflation
(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 inflation
dropped to 5.3 per cent from 11.7 per cent, led by a sharp fall in global oil prices, while core inflation
(measured by the CRISIL Core Inflation
Indicator — CCII
— 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 inflation
in manufactured products. Reason why it also indicates the pricing power of manufacturers. CCII
is computed after excluding inflation
in ‘basic metals’ from manufactured products, which is subject to high price volatility. Inflation
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 inflation
such as non-food manufacturing inflation, which includes metal prices, stayed unchanged from the previous month at 2.1 pr cent. And interestingly, overall inflation
in manufactured products showed slower moderation in June compared with the previous months.
In June, inflation
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. Inflation
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 inflation
for the fourth consecutive month reflects weak pricing power.
In June, while the rupee was stable, crude oil prices fell nearly 8 per cent on-month and over 3 per cent on-year. Inflation
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).
entered the negative zone to record -1.3 per cent in June, down from 0.1 per cent in May. Inflation
in food articles slipped to -3.5 per cent from -2.3 per cent, whereas inflation
in manufactured food products eased to 3.1 per cent from 4.8 per cent.
Lately, the decline in food articles’ inflation
has become more broad-based as categories other than pulses and vegetables, such as cereals, fruits, sugar, edible oils, milk
and eggs, have also seen inflation
fall steadily. Record growth
in food production in fiscal 2017, healthy progress of monsoon so far, and continued decline in vegetables inflation
supported by a high base effect are the main factors behind easing food inflation.
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 inflation
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 WPI
since the new series excludes the impact of such indirect taxes on prices.
CCII inflation shows sharper fall in June as it excludes ‘noisy’ metal prices
Note: *CCII removes base metal prices from WPI manufacturing index
Source: Ministry of Industry and Commerce, CRISIL Research