Food inflation drops

Wholesale price inflation (WPI) edged down to 3.6 per cent in September, after it rose to 3.7 per cent in August - the highest level since August 2014. Food inflation continued to trend down - falling by 170 bps, while core inflation remained stagnant and fuel inflation picked up pace in September. Core inflation, as measured by the CRISIL Core Inflation Indicator stood at 3.3 per cent versus 0.7 per cent in September last year.

Food inflation (primary plus manufactured food) fell to 7.5 per cent from 9.2 per cent in August due to a fall in primary articles inflation, especially in fruits, vegetables, and spices. That said, high inflation in milk, eggs, meat & fish, food grains especially pulses kept the overall food inflation high. Further, inflation in food products (at 11.4 per cent) - a result of rising inflation in sugar and beverages, tobacco and tobacco products also remained high. Overall, inflation in manufactured products also inched up to 2.5 per cent in September on the back of rising wood and word products and textiles inflation.

 

In the 'fuel and power' category, inflation bounced up to 5.6 per cent in September from 1.6 per cent in August. This was led by rise in prices of high speed diesel, kerosene, and aviation turbine fuel and furnace oil. For the past few months, an interesting phenomenon had emerged in the two core inflation measures.

Not only were the two measures showing a divergent trend but the CCII measure also turned positive since December while the non-food manufacturing inflation measure remained negative.

In September, the non-food manufacturing inflation measure stood at 0.6 per cent - remaining unchanged from August - while CCII inflation, after entering the positive zone in December, was at 3.3 per cent.

The larger pick-up in CCII has been mainly led by a rise in inflation in processed food products (18 per cent weight in this index), beverages, tobacco & tobacco products. The CCII offers a better perspective on core inflation as it negates the effect of volatile categories. It excludes base metals as their prices are mostly determined by global demand-supply dynamics and volatility in exchange rates, rather than just domestic conditions.

This exclusion causes a variance between CCII and non-food manufacturing inflation. Basic metals prices continued to fall in September, with inflation in ferrous metals at -3.6%. As a result, non-food manufacturing inflation remained much lower than the CCII in September.