WPI inflation at 3-month low in Sept

However, provisional estimates for Sept released on Friday may be taken with some degree of caution

Wholesale Price Index (WPI)-based inflation declined to a three-month low of 3.57 per cent in September from 3.74 per cent in the previous month as food inflation fell sharply by 2.48 percentage points, led by vegetables.

The broad trend is in alignment with Consumer Price Index-based inflation, which dropped to a 13-month low of 4.31 per cent in September and gave a lead indication that the rate of retail price rise, at least in food items, might come down further in the coming months.

WPI, which was in the negative zone from November 2014 to March 2016, had been rising at greater pace each month for six months till August. The inflation slowed down in September. This may raise demand for further rate cut by the Monetary Policy Committee in December, after a 0.25 per cent reduction earlier this month. However, there are trends when one deeply analyses inflation, which was not visible in the outset reading of the headline number. First, WPI inflation was sharply raised to 3.72 per cent from the provisional estimate of 3.55 per cent for July. As such, provisional estimates for September released on Friday might be taken with some degree of caution. Besides, the WPI food inflation came down to 5.75 per cent in September from 8.23 per cent in the previous month, but the headline number declined by only 0.14 percentage points. This was so because inflation in manufactured products and fuels — the combined weight of which is 78 per cent in WPI – showed an uptick.

Fuel price index rose to 5.58 per cent from 1.62 per cent in August as diesel prices were up 19 per cent against 12.15 per cent.

Inflation in manufactured products also increased marginally to 2.48 per cent from 2.42 per cent. It was mainly wood and wood products that saw higher inflation at 3.40 per cent in September against 1.86 per cent in the previous month.

Also, core inflation (inflation minus fuel and food items) rose to 0.65 per cent in September from 0.56 per cent in the previous month.

“The rise in core inflation suggests that domestic pricing power has not weakened, regardless of the dip in headline inflation,” said Aditi Nayar, senior economist, ICRA. Vegetables, which fuelled inflation as recent as in July, saw a decline in prices by 11 per cent in September.

Pulses, which were also pushing up WPI inflation, saw the rate of price rise falling to 23.99 per cent in September from 34.55 per cent in August.

The inflation would further come down as monsoon has been normal this season. The only exception could be chana (gram), which is a rabi crop, and some food products in the manufactured category such as sugar. This could be partly offset by pay hike of government servants, but the impact was not visible in August and September.

Amid an all-round fall in food inflation, fruits and milk were outliers. Inflation in fruits saw an uptick to 14.1 per cent against 13.91 per cent, while that in milk touched 3.71 per cent from 3.4 per cent.