Drop in food inflation drags WPI lower

Wholesale Price Index-based inflation (WPI) slipped for the fourth consecutive month to 3.2% in November

Wholesale Price Index-based inflation (WPI) slipped for the fourth consecutive month to 3.2 per cent in November from 3.4 per cent in October. Food inflation saw a sharp fall as fresh supplies entered the market and demand was hurt by the cash crunch. The surprise, however, was that core inflation indicators reared up in November suggesting that although the cash crunch caused by the demonetisation exercise is curtailing consumer demand, it is yet to reflect in wholesale pricing. The CRISIL Core Inflation Indicator (CCII) rose 20 basis points (bps) over the October number, while non-food manufacturing inflation was up 60 bps. Meanwhile, the impact of rising global oil prices and weakening rupee was reflected in fuel and power inflation, which was up 90 bps in November. 

Food inflation (primary plus manufactured) slipped further and at 4.4 per cent in November, is nearly 760 bps down from its peak in July, driven by base effect. But a bumper kharif crop is also helping ease food inflation. In November, inflation in fruits and vegetables declined to (-) 11.8 per cent, compared with (-) 1.9 per cent in October. Inflation in protein-based items (milk, eggs, meat and fish) has also been easing. 

WPI - Core Numbers

The CCII, meanwhile, has been more stable. This indicator 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.  Rising core inflation suggests demonetisation impact is yet to be felt at the wholesale level.