Pulses check WPI fall-rate

Grains and vegetables pricier, fall in core inflation less steep

Wholesale Price Index (WPI) inflation printed at -2 per cent in November, up from -3.8 per cent in October, as food inflation (especially in vegetables and foodgrains) surged. Yet, subdued global crude oil and commodity prices, besides lacklustre domestic demand, kept headline inflation negative. Core inflation, as measured by the CRISIL Core Inflation Indicator (CCII), also inched up to -0.1 per cent from -0.4 per cent last month.

Food inflation (primary food articles and manufactured products) soared to 3.8 per cent in November from 1.7 per cent in October led by a low-base effect as well as a rise in onion and tomato prices. Inflation in pulses continued to spiral, rising to 58.2 per cent in November from 53 per cent last month. Within the pulses basket, inflation was the highest for arhar (78.5 per cent), followed by urad (76.5 per cent) and gram (62.5 per cent).

The bigger worry is on the rabi crop front. Data show that rabi sowing till December 11 has lagged last year’s levels — sowing of rice, wheat and oilseeds has declined 14.9 per cent, 15.6 per cent and 7.7 per cent, respectively, while sowing of pulses has dropped 0.7 per cent.

Frequent supply shocks in recent years have exacerbated the upward pressure on the prices of pulses. Raising the irrigated area under pulses is an imperative, as is making available high-yielding variety seeds and nutrients at a reasonable cost. Both are crucial to help raise productivity. Focus on post-harvest storage and transportation facilities is also critical. The government on December 9 announced a number of steps to boost pulses supply. Effective implementation is the key. While pulses have a lower weightage in food inflation, it makes up most of the consumption basket.

Thus, a rise in pulses price can hugely impact inflation expectations and wage-price negotiations.

Meanwhile, the fall in wholesale manufactured products’ inflation moderated in November at -1.4 per cent compared with -1.7 per cent in October, as inflation manufactured food products inched up to 0.9 per cent from 0.2 per cent; in wood and wood products to 5.5 per cent from 3.9 per cent; and, in transport equipment and parts to 1.5 per cent from 1.2 per cent. In other categories, inflation dropped or remained negative.

Overall, headline inflation remained negative. Although the rupee has weakened 6.6 per cent so far, global metal and mineral prices have fallen an average 30.2 per cent, while crude oil prices have slumped 43.4 per cent. This has brought down the production costs for manufacturers. Alongside, sluggish domestic demand has curbed manufacturers’ pricing power and kept core inflation low.

In line with the headline numbers, core inflation, too, remains negative. Yet, the decline this month was less steep. The CCII inched up to -0.1 per cent from -0.4 per cent last month, after declining for 16 straight months and being negative since July this year. Another measure of core inflation, non-food manufacturing inflation (which includes the volatile base metals), also picked up to -1.9 per cent from -2.1 per cent.

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. Global base metal prices dropped 29.4 per cent in November, pushing wholesale inflation in this category to -7.8 per cent.