CRISIL core inflation tracker: Costlier fuel and food cranks up WPI

Non-food manufactured inflation averaged 1% in the April-Feb period of FY17, while CCII stood at 3%

Wholesale Price Index (WPI)-based inflation soared to 6.5 per cent in February, the most in more than three years, and up 130 basis points (bps) over the January number. The surge was led by a 200-basis point (bp) kick-up in food inflation and close to 300 bps jump in fuel inflation. Meanwhile, surprisingly, both core inflation as well as manufacturing goods inflation slipped 20-30 bps, possibly reflecting the negative impact of demonetisation on demand and therefore on pricing power in these sectors.

After a long time, both the measures of core inflation — non-food manufacturing inflation and CRISIL Core Inflation Indicator (CCII) — moved in tandem. Non-food manufacturing inflation fell to 2.4 per cent in February, from 2.7 per cent in January, whereas the CCII fell to 3.1 per cent from 3.3 per cent. However, there is a big difference in the average inflation as measured by these two measures in 2016-17 as a whole. Non-food manufactured inflation averaged 1 per cent in the April-February period of FY17), while CCII stood at 3 per cent. CCII has, over time, offered a better perspective of demand-side impact on inflation by negating ‘basic metals, alloys and metal products’ inflation, which is subject to high price volatility, and by adding back ‘food products’ where the inflation is believed to be more led by excess demand. During February, inflation in the ‘basic metals, alloys and metal products’ fell (to 6.4 per cent, from 8 per cent in January) causing the non-food manufacturing inflation to decline.