Demonetisation pulls down wholesale inflation to five-month low of 3.15% in Nov

Food inflation declined to 1.25% from 3.31% due to demonetisation-enforced cash crunch

The wholesale price index (WPI)-based inflation fell to a five-month low of 3.15 per cent in November from 3.39 per cent in the previous month, as the rate of rise in food prices was dampened by the cash crunch following the demonetisation  of high-value currency notes from November 8 onwards. 

But, fuel and manufactured products saw a rise in inflation due to rise in metal prices which could exert an upward pressure. The data came a day after of the release of consumer price index-based inflation numbers that saw the rate of price rise cooling to the lowest in November in the new series.  

Food inflation declined to 1.25 per cent from 3.31 per cent due to demonetisation-enforced cash crunch.

Even in food products, cereals saw an increase in inflation from 6.13 per cent to 7.32 per cent. Both, rice and wheat saw upward movement in the rate of price rise. 

However, vegetables continued to witness deflation, which increased its pace to 24 per cent from 10 per cent. 

Fuel and power saw a rise in inflation to 7.07 per cent from 6.18 per cent as petrol and liquefied petroleum gas turned expensive at a greater pace. Diesel, however, saw a fall in inflation. 

Manufactured products witnessed  inflation at 3.20 per cent in November against 2.67 per cent in the  previous month due to metals and leather prices. 

It should be noted that manufactured items and fuel products account for 79 per cent of the WPI and if inflation rises further in these two categories, the headline number would also face an upward pressure, thereby, negating downward impact from food prices. 

Since wholesale prices are lead indicators to consumer prices, inflation in manufactured items and fuel products would also see a rise in consumer price index (CPI) in the coming months. However, with food items accounting for more than 45 per cent of the CPI, any kind of upward pressure remains off limits for some time.